Former Citigroup Inc. (C) (C) official Brian Stoker defeated the U.S. Securities and Exchange Commission in a trial involving a deal at the center of the bank’s proposed $285 million settlement with regulators over subprime residential mortgage securities. 
 
 The jury reached its verdict yesterday in Manhattan federal court. The SEC accused Stoker, the former director of Citigroup’s collateralized debt obligation structuring group, of violating securities law in putting together the assets underlying a $1 billion CDO-squared, or a CDO made up of CDOs. 
 
 The SEC claimed New York-based 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 short position. 
 
 “This verdict should not deter the SEC from continuing to investigate the financial industry, to review current regulations, and modify existing regulations as necessary,” the jury said in rendering its decision that Stoker wasn’t liable. 
 
 Stoker’s trial featured testimony from several people who worked on the CDO-squared investment, which was named “Class V Funding III.” His lawyers argued that the purchasers were sophisticated investors that weren’t misled about Citigroup’s interest in the security. 
 
 The SEC was seeking to have Stoker disgorge profits from the deal and pay a fine. 
 
 ‘Financial Crisis’ 
 
 “We respect the jury’s verdict and will continue to aggressively pursue misconduct arising out of the financial crisis,” Robert Khuzami, director of the SEC’s enforcement division, said in a statement. 
 
 U.S. District Judge Jed Rakoff, who oversaw the 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. 
 
 “We agree with the jury’s verdict, and hope to secure final judicial approval of our settlement with the SEC and put this matter behind us,” Danielle Romero-Apsilos, a spokeswoman for Citigroup, said in a statement. 
 
 Jurors began deliberating July 30 at the end of a trial that started July 16. 
 
 Rakoff announced the verdict in the Stoker case yesterday during a break in the trial of Whitman Capital LLC founder Doug Whitman on insider trading charges. 
 
 The case is U.S. Securities and Exchange Commission v. Stoker, 11-cv-7388, U.S. District Court, Southern District of New York (Manhattan). 
 
 To contact the reporters on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net; Emily Grannis in Manhattan federal court. 
 
 To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net 

 * Former bank manager at least negligent - SEC attorney 
 
 * "Where's Waldo?" defense lawyer asks jury 
 
 * Jury to decide civil securities fraud charges 
 
 By Grant McCool 
 
 NEW YORK, July 30 A jury was asked on Monday to decide whether one of the few individuals charged over the collapse of subprime mortgage investments intentionally misled investors in a $1 billion Citigroup Inc deal or had been singled out to take the blame for losses. 
 
 Brian Stoker, a former manager on Citigroup's mortgage investments desk, could be barred from the financial industry and ordered to pay fines if convicted on two civil counts of securities fraud. His trial in U.S. District Court in Manhattan began two weeks ago. 
 
 The U.S. Securities and Exchange Commission contends that Stoker failed to tell buyers that the bank selected some of the assets for a mortgage pool known as a collateralized debt obligation and made a $500 million "short" bet that it would fail. 
 
 The transaction caused more than $700 million in investor losses, the SEC said. 
 
 In closing arguments, SEC lawyer Jeffrey Infelise told the jury that Stoker's conduct was more than a risky high-stakes bet as the defense has argued. 
 
 "Citigroup stacked the deck and Brian Stoker dealt the cards," Infelise said. "Even if you don't believe it was intentional, it had to be negligent." 
 
 Infelise also said emails from Citigroup managers introduced at trial showed the bank wanted to identify assets it could bet against. "We are trying to find the worst performing assets," one of the emails said. 
 
 Stoker, of Pound Ridge, New York, was the only person charged in a broader case against Citigroup by the regulator. Last week, he took the stand in his own defense, testifying that he followed best practices by keeping lists of assets and urging his team to review them before marketing to potential investors. 
 
 In November 2011, U.S. District Judge Jed Rakoff, who is overseeing the trial, rejected a $285 million settlement between Citigroup and the SEC over allegations surrounding the investment pool. The judge said that failure to require the bank to admit or deny the charges left him no way to know whether the pact was fair. A federal appeals court in New York is expected to consider later this year whether that rejection was proper. 
 
 In his closing statement Monday, Stoker's lawyer, John Keker, described his client as a "straight arrow." 
 
 Keker told the jury that "most of the trial had nothing to do with Brian Stoker" and that it reminded him of the children's book, "Where's Waldo?" 
 
 Some jurors giggled when Keker displayed a reproduction of the cover of a Waldo book. In the books, the reader tries to find the Waldo character in a crowd of other characters. 
 
 "Everyone in this CDO group, including the managing directors, knew as much or more than Brian Stoker did," Keker said. 
 
 The case is SEC v. Stoker, U.S. District Court, Southern District of New York, No. 11-cv-7387.
– Before the jury began its deliberations yesterday in the fraud trial of ex-Citigroup banker Brian Stoker, it heard a decidedly colorful argument from his lawyer. "Most of the trial had nothing to with Brian Stoker," John Keker said in his closing, saying it reminded him of the Where's Waldo? books. Then, he went so far as to pull up a reproduction Where's Waldo? cover, Reuters reports. "Everyone in this CDO group, including the managing directors, knew as much or more than Brian Stoker did," Keker said. Stoker was on trial for his role in hand-picking assets for a collateralized debt obligation, then selling that CDO to clients—without telling them that Citi was betting $500 million it would fail. "Citigroup stacked the deck and Brian Stoker dealt the cards," the SEC said in its closing argument. Keker argued that Citi as a whole was to blame, not Stoker individually. The jury apparently agreed, today declaring that Stoker was not liable for misleading investors, reports BusinessWeek.