Judge Jed Rakoff from the U.S. District Court of the Southern District of New York today rejected Citigroup's settlement with the Securities and Exchange Commission (SEC) regarding the sale of a $1 billion CDO linked to subprime MBS.

The SEC accused Citigroup of substantial securities fraud for misleading investors in the sale of the CDO. The bank agreed last month to a settlement with the SEC, which would have meant that investors in the said transaction would have gotten back $285 million.

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