The SEC cited an e-mail from one unnamed CDO trader who characterized the portfolio for the Citigroup deal as 'dogsh!t" and "possibly the best short EVER."
Class V Funding III was in default less than nine months after closing on Feb. 28, 2007, the SEC said.
Ambac Financial Group Inc., whose bond-guarantee unit was taken over by the state of Wisconsin last year shortly before its own bankruptcy, sold insurance on $495 million of the deal, according to a regulatory filing.
Stoker "was not responsible for any alleged wrongdoing -- he did not control or trade the position, did not prepare the disclosures and did not select the assets," Hunter said.
Bhatt's lawyer, James Masella, declined to comment, as did Steven Vames, a New York-based spokesman for Credit Suisse. Citigroup, Credit Suisse and Bhatt didn't admit or deny the SEC's claims.
"We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly," Citigroup said in an e-mailed statement.
Citigroup's $285 million payment will be used to reimburse investor losses, the SEC said.
The SEC's June settlement with JPMorgan resolved claims it failed to tell investors, including pension funds and a Lutheran group, that hedge fund Magnetar Capital LLC helped pick assets linked to a CDO it was betting against.
Separately, Standard & Poor's, the world's largest provider of credit ratings, said last month it may face SEC sanctions for giving top grades to mortgage-backed securities before they plummeted in value.