Fred R. Conrad/The New York Times

A federal judge has raised questions about why he should approve the government’s $285 million civil settlement with Citigroup, suggesting that he is skeptical of the pact.

Judge Jed S. Rakoff of the Federal District Court in Manhattan, who has in the past showed hostility toward Securities and Exchange Commission settlements, issued an order on Thursday laying out what he wanted the agency and Citigroup to answer at next month’s hearing on the proposed deal.

He posed nine questions to the parties, including how a fraud of this nature and magnitude could be the result simply of negligence. The judge also asked why the court should approve a settlement in a case in which the S.E.C. alleges a serious fraud but the defendant neither admits nor denies wrongdoing,

He also asked why the penalty was less than one-fifth of the one assessed against Goldman Sachs in a similar case.

Under the federal securities laws, a judge is required to ascertain whether a proposed S.E.C. settlement is “fair, reasonable, adequate, and in the public interest.” Judges have historically rubber-stamped these settlements.

An S.E.C. spokesman said the agency looked forward to responding to Judge Rakoff’s questions. A Citigroup spokeswoman declined to comment.

The S.E.C. accused Citigroup of misleading its customers in selling them toxic mortgage securities as the housing market neared collapse. The agency also charged Brian Stoker, a junior Citigroup banker, with fraud. Mr. Stoker is fighting the allegations.

Judge Rakoff’s sharp questions in Wednesday’s order hardly come as a surprise to many who follow his jurisprudence.

“This is classic behavior for Judge Rakoff,” said Andrew Stoltman, a securities lawyer in Chicago. “He has been a thorn in the side for the S.E.C. for years, and I can promise you these questions” make the agency nervous. The judge is perhaps best known for scuttling a proposed $33 million settlement in September 2009 between the S.E.C. and Bank of America over the bank’s acquisition of Merrill Lynch. He called it a sweetheart deal that had been done “at the expense, not only of the shareholders, but also of the truth.” The judge later approved a $150 million deal.

Judge Rakoff has also expressed aversion to the agency’s custom of settling cases without forcing the defendant to admit wrongdoing. In an opinion earlier this year, he threatened to reject the next S.E.C. settlement that included the “neither confirming nor denying wrongdoing” language.

In Wednesday’s order, Judge Rakoff reiterated his displeasure with the boilerplate wording.

“Given the S.E.C.’s statutory mandate to ensure transparency in the financial marketplace, is there an overriding public interest in determining whether the S.E.C.’s charges are true?” the judge asked.

He raised several other issues and pointedly asked the agency what it did to protect against repeat violations by the defendants with which it settled.

Despite the S.E.C.’s having charged Mr. Stoker, Judge Rakoff said he wanted to know why the agency penalized Citigroup and its shareholders instead of the bank executives who committed the wrongdoing. And, “if the S.E.C. was for the most part unable to identify such alleged offenders, why was this?”

The case against Citigroup is the third brought by the S.E.C. that accuses a bank of misleading its clients about mortgage securities. Goldman and JPMorgan Chase & Company each settled their cases last year.

Other judges have rejected S.E.C. settlements. A federal judge in Washington would not approve a $75 million agreement between the agency and Citigroup over the value of its subprime mortgages until the parties revised aspects of the deal.

Judge Rakoff has been ubiquitous of late. On Wednesday, he presided over the arraignment of Rajat K. Gupta, the former Goldman Sachs director accused of insider trading. And he is overseeing the dispute between the trustee in the Bernard L. Madoff fraud and the owners of the New York Mets.



Judge Rakoff’s order in S.E.C. v. Citigroup Global Markets