The SEC Inspector General H. David Kotz, cleared Enforcement Director Robert Khuzami of allegations he improperly intervened in a 2010 settlement with Citigroup.  The report was issued 9/27/11 and released 11/17. The incident in question involved a private phone call between Khuzami and Citigroup's lawyer during the negotiation process.  The accuser was an anonymous whistleblower who alleged the agency dropped fraud charges against the executives due to pressure from Khuzami, on behalf of Citi's lawyer Mark Pomerantz.

The 2010 settlement: Citigroup agreed to pay a $75mn for misstatements it allegedly made about its exposure to subprime mortgages in 2007.  The SEC also sued Citigroup's CFO and its head of investor relations, for their role in the mistakes - though neither were charged with fraud.

Auditing The Incident in Question. Khuzami had the phone conversation with his friend Pomerantz.  They did not agree to a deal during that call, to ascertain that fact, Khuzami called Pomerantz again and confirmed that no settlement had been reached, the Inspector General's Report said. The Report further notes that settlement negotiations involved several members of the Enforcement staff - not just Mr. Khuzami.   Khuzami also "reported back" to the SEC lawyers on the investigation and conducted "further discussions" before a final decision on the settlement.  The Report further states that Khuzami told staff lawyers that, if they were not "comfortable" with the settlement, he would reject it. The Inspector General concluded in the Report that Khuzami should be cleared of allegations he "forced" his staff to drop some of the more serious charges against the bank on behalf of his friend and former colleague, who was Citi's lawyer.   [Reuters, 11/17/11]