A federal judge expressed deep skepticism about a proposed $285 million civil settlement between the top U.S. market regulator and Citigroup Inc over charges that the bank defrauded investors.

A written order by U.S. District Judge Jed Rakoff was the latest to put U.S. Securities and Exchange Commission settlements with major banks under scrutiny.

Two years ago, Rakoff himself rejected an SEC accord with Bank of America Corp, later approving revisions only grudgingly, and Thursday's order suggests another showdown with the regulator may be in the offing.

Rakoff directed the SEC and Citigroup to answer nine questions about the settlement. These go to fundamental issues such as the size of the fine imposed, why no individuals were held financially responsible, and why the SEC did not demand any admission of wrongdoing for a ``serious securities fraud.''

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment, but SEC spokesman John Nester said the agency was looking forward to responding to the questions raised by the court.

Rakoff scheduled a Nov. 9 hearing in Manhattan federal court on the fairness of the Oct. 19 settlement, which was intended to resolve allegations that Citigroup defrauded investors who bought toxic housing-related debt that the bank bet would fail.

The SEC and criminal prosecutors are under pressure from lawmakers and the public to bring cases that hold Wall Street executives accountable for their role in the 2007-2009 financial crisis that triggered a deep global recession.

Robert Hillman, a professor at the University of California at Davis School of Law, said that judges in the past would have ''rubber-stamped'' settlements such as Citigroup's, but times have changed.

``Rakoff is asking the hard questions that everyone wants asked,'' Hillman said. ``He may run both sides through the ringer, as he did with Bank of America.

``We want to have light shined on the fairness of these settlements, and the judge is shining the flashlight,'' he added.

SHORT POSITION

According to the SEC, the bank's Citigroup Global Markets unit misled investors about a $1 billion collateralized debt obligation (CDO) by failing to reveal it had ``significant influence'' over the selection of $500 million of underlying assets, and took a short position against those assets.

Among other matters, Rakoff questioned why the $95 million fine imposed as part of the settlement was less than one-fifth the fine paid by Goldman Sachs Group Inc in another CDO case. Goldman settled that case in July 2010 for $550 million.

Rakoff's questions also included: ``How can a securities fraud of this nature and magnitude be the result simply of negligence?'' and ``What reason is there to believe this proposed penalty will have a meaningful deterrent effect?''

The judge also asked ``why Citigroup shareholders should pay rather than culpable individual offenders?'' That issue was a central reason for Rakoff's rejection of the original Bank of America accord in 2009.

In that case, the judge tossed out a $33 million settlement with Bank of America Corp over its takeover of Merrill Lynch & Co. He later approved a revised $150 million accord even as he called it ``half-baked justice at best.''

The SEC did file charges against one Citigroup employee whom it said was primarily responsible for structuring the transaction. A lawyer for the banker has said there was no basis for the allegations.

The proposed settlement with Citigroup is the third by the SEC against a major bank it accused of marketing a CDO without disclosing it was betting against it or allowing others to do so. Other settlements include the Goldman accord, and JPMorgan Chase & Co's agreement in June to pay $153.6 million.

The case is SEC v Citigroup Global Markets Inc, U.S. District Court for the Southern District of New York, No. 11-7387.