The SEC and Citigroup have to convince a skeptical judge that a proposed $285 million civil settlement with Citigroup Inc over alleged fraud involving toxic mortgage debt is fair -- even though investors may have lost more than twice that amount. U.S. District Judge Jed Rakoff had ordered both sides to answer nine questions about the Oct. 19 accord, including why Citigroup was not required to admit or deny wrongdoing. The judge previously has threatened to reject similar SEC settlements. That sets the stage for a possible showdown at a Wednesday court hearing, at which he will also consider whether the settlement is in the public interest. SEC Chairman Mary Schapiro defended the practice of not requiring admissions of wrongdoing, saying other regulators also use it and that it can avoid years of litigation. "Our goal is to get money quickly back to investors," she told reporters at a Securities Industry and Financial Markets Association conference in New York. "Then we can turn our limited resources back to the next case." The SEC had accused Citigroup of selling a mortgage-linked investment at the same time it bet the debt would fail. Charges against the bank relate to the sale of a $1 billion collateralized debt obligation known as Class V Funding III in 2007, as the housing market was beginning to collapse. Citigroup's $285 million payment would include $160 million representing ill-gotten profit, $30 million of interest, and a $95 million fine. One Citigroup employee, director Brian Stoker, was also charged by the SEC. He has contested the charges. In court papers filed on Monday, the SEC said it is "reasonable to estimate" that investor losses from the CDO will be "in excess of $700 million," after earlier estimating a loss of "several hundred million dollars." But the regulator said Citigroup's $160 million of fees and ill-gotten gains were the proper measure of damages, not the amount of losses, and that it therefore "did not devote resources" to calculate the precise amount of those losses. The SEC also said the accord does not unfairly harm shareholders, who were not victims of the transaction but rather were "indirect financial beneficiaries." The SEC also defended the $95 million fine, less than one-fifth what Goldman Sachs Group Inc paid in a 2010 SEC settlement, saying that Citigroup was charged only with negligence, while Goldman was more culpable. Citigroup said in a separate court filing that prolonging its case could make it harder to defend against other mortgage lawsuits. It said it used appropriate judgment "to determine how much of the shareholders' money should be used to settle." The bank also said the SEC did not identify any superiors of Stoker who knew enough about the transaction or alleged inadequate disclosures to be charged. [reuters, 11//7/11]