Recall that when the SEC inked its much-discussed settlement with Bank of America over a raft of Merrill Lynch-related issues, the moment was noteworthy because it seemed like a victory for regulators. But then Judge Jed Rakoff took a look at it in detail, he pointedly rejected it, suggesting that the SEC was letting Bank of America off way to easily.

Rakoff eventually approved a redrawn and slightly tougher settlement, but only with more grumbling that did not serve the SEC well. It came off as lax on crime. As fate would have it, Judge Jed Rakoff has been assigned the SEC's settlement with Citi over various CDO-related fraud charges.

Breakingviews suggests that the deal is ripe for rejection. It compares the deal to the Goldman Sachs famous ABACUS CDO settlement, which was the largest civil fine ever, and concludes that "Citi's purported transgression looks worse by comparison. Goldman's alleged offense in structuring the infamous Abacus CDO was not telling buyers that a hedge fund, Paulson & Co, was both selecting some of the assets as well as shorting the deal. But Citi itself, according to the SEC, actively sought to profit from the demise of its deal. Yet Citi's overall penalty comes in at about half of Goldman's."

Overall, "it looks like the SEC let Citi off lightly or overdid it with Goldman. Either way, it sounds like a situation well suited to Rakoff's skeptical eye." This will be very interesting to watch.

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