The SEC has alleged that in 2007, Citi created and sold a mortgage-related collatarized debt obligation, or CDO, called Class V Funding III.
According to the SEC complaint, one CDO trader characterized the asset group in internal communications as "a collection of dogshit" and "possibly the best short EVER!"
In marketing materials, however, the assets were described as "attractive investments rigorously selected by an independent investment adviser," Rakoff's decision said.
After marketing the CDO, Citi then took a short position -- or bet against -- the security as the housing market deteriorated, bringing in a net profit of $160 million for the bank. Meanwhile, investors lost more than $700 million.