(Bloomberg News) The U.S. Securities and Exchange Commission defended Citigroup Inc.'s $285 million settlement of claims the bank misled investors in collateralized debt obligations.

The SEC, responding to questions raised last month by U.S. District Judge Jed Rakoff in Manhattan, today called the settlement with Citigroup "fair, adequate and reasonable," and said it should be approved by the court. Rakoff scheduled a hearing on the settlement Nov. 9.

"The proposed settlement reasonably reflects the scope of relief likely to be obtained by the commission under the applicable law if successful at a trial on the merits" the SEC said in a brief. "The settlement allows the commission to devote resources that may have been required for this matter to investigate other fraud and misconduct."

Rakoff, who in 2009 rejected a $33 million settlement between the SEC and Bank of America Corp., asked Citigroup and the SEC to address nine questions about the proposed settlement, including "Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?"

Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, the third-biggest U.S. bank, didn't immediately return a voice-mail message seeking comment on the SEC filing.

Public Interest

Rakoff also told the parties to address whether the public has an interest in determining whether the SEC claims against Citigroup are true and how the amount of loss to victims and the proposed judgment against the bank were calculated.

The judge questioned the SEC's plan for preventing future violations and asked why Citigroup shareholders -- not the individual executives responsible for the alleged fraud -- are required to pay.

"How can a securities fraud of this nature and magnitude be the result simply of negligence?" Rakoff wrote.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).