The former director of Citigroup Inc. (C)’s collateralized debt obligation structuring group misled investors in the deal at the center of the bank’s proposed $285 million settlement with the Securities and Exchange Commission, an agency lawyer told jurors.
The SEC claims that Brian Stoker negligently violated securities law in putting together the assets underlying a $1 billion collateralized debt obligation, or CDO, called “Class V Funding III.”
“Brian Stoker made untrue statements and material misstatements to investors,” Jeffrey Infelise, an SEC lawyer, told the jury yesterday at the start of Stoker’s civil trial in Manhattan federal court.
The SEC claims Citigroup structured and sold the CDO in 2007 without telling investors that it helped pick about half the underlying assets and was betting they would decline in value by taking a $500 million short position. The SEC seeks an order requiring Stoker to disgorge profits from the deal and pay a fine.
Stoker’s lawyer, John Keker, urged jurors to look beyond any dislike they may have for Citigroup or for trading in synthetic CDOs, which he called “high-stakes, high-level gambling.”
“It’s not the bank or the transaction that’s on trial here,” Keker said to jurors. “It’s Brian Stoker.”
U.S. District Judge Jed Rakoff, who is overseeing the Stoker trial, last year rejected Citigroup’s $285 million settlement with the SEC in which the bank wasn’t required to admit any liability. That ruling is on appeal.
Rakoff last week denied Stoker’s request to dismiss the SEC’s claims, ruling that there is enough evidence for a jury to find him liable.
Rakoff told jurors the trial may take three weeks.
The case is U.S. Securities and Exchange Commission v. Stoker, 11-cv-7388, U.S. District Court, Southern District of New York (Manhattan).
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