By Grant McCool

NEW YORK, July 31 (Reuters) - A former Citigroup Inc manager was found not liable on Tuesday of civil charges of misleading investors, a blow to regulators in one of the few fraud cases brought against a Wall Street executive over the collapse of subprime mortgage investments.

Brian Stoker, who worked on the bank's mortgage investments desk, was charged by the U.S. Securities and Exchange Commission as part of a broader civil lawsuit against the bank.

At a two-week trial in U.S. District Court in Manhattan, the commission argued that Stoker failed to tell the buyers of a $1 billion Citigroup collateralized debt obligation that the bank had made a $500 million "short" bet that the mortgage pool would fail.

Stoker and his lawyer argued that he followed the bank's best practices and was singled out for blame.

If the jury had ruled in the SEC's favor on the two civil counts of securities fraud, he could have been barred from the financial industry and ordered to pay penalties.

Stoker left the court smiling. The eight-member jury delivered its verdict on its second day of deliberations.

"We are very grateful that justice was done," Stoker's lawyer, John Keker, said outside the courtroom.

Earlier, when U.S. District Judge Jed Rakoff opened the jury's verdict envelope, he said the panel had also included a statement with its decision.

"This verdict should not deter the SEC from continuing to investigate the financial industry, to review current regulations, and modify existing regulations as necessary," the note said.

Judge Rakoff had rejected late last year a $285 million settlement between Citigroup and the SEC over the mortgage investment, saying he had no way to know whether the pact was fair because the bank was not required to admit or deny the agency's charges. The bank and the commission are appealing that decision.

Robert Khuzami, director of the SEC's enforcement division, said: "We respect the jury's verdict and will continue to aggressively pursue misconduct arising out of the financial crisis."

Representatives from Citigroup did not immediately respond to a request for comment on Tuesday's verdict.

The case is SEC v. Stoker, U.S. District Court, Southern District of New York, No. 11-cv-7387.