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Former Citigroup Manager Cleared in Mortgage Securities Case

New York Times

A jury on Tuesday cleared a former Citigroup executive of wrongdoing connected to the bank's sale of risky mortgage-related investments at the peak of the housing boom, dealing a blow to the government's effort to hold Wall Street executives accountable for their conduct during the financial crisis.

The trial of Brian Stoker, a former mid-level Citigroup executive, served as a referendum on a questionable practice that became common in the years leading up to the financial crisis: Selling clients complex securities tied to the housing market while simultaneously betting against those same securities.

The S.E.C. did not accuse Mr. Stoker of committing securities fraud. Instead, it accused him of negligence in preparing sales materials for a complex mortgage-related investment called a collateralized debt obligation, or C.D.O.s. The government claimed that Mr. Stoker knew or should have known that he was misleading investors by not disclosing that Citigroup helped select the underlying mortgage securities in the C.D.O. and then placed a large bet against it.

The S.E.C separately sued Citigroup, but Mr. Stoker was the only bank executive charged in the case. None of Citigroup's senior management was named by the commission.

Mr. Stoker's lawyer, John Keker, had depicted his client as a scapegoat for the industry's sins. While decrying the "high-stakes, high level gambling" that banks engaged had in during the housing boom, Mr. Keker urged the jury to set aside any distaste that it had for Wall Street's questionable behavior and the mind numbingly complex mortgage securities that it concocted.

"It's not the bank or the transaction that's on trial here," said Mr. Keker in his closing argument. "It's Brian Stoker."

Mr. Stoker's lawyers argued that Credit Suisse, the bank that Citigroup brought in to serve as a manager of the C.D.O., did its own homework on the underlying securities.

"We're grateful that justice was done and Brian Stoker can get back to his life," Mr. Keker said outside the courtroom shortly after the verdict came down. 

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Mr. Stoker was represented by John Keker, Jan Nielsen Little, Brook Dooley, Steve Taylor and Matan Shacham.