* Stoker only individual charged at Citigroup in SEC case
* Rakoff rejected Citigroup's $285 million SEC settlement
* Trial to last 2 weeks with Stoker to testify
By Basil Katz
NEW YORK, July 16 (Reuters) - A former Citigroup Inc manager did not mislead investors who bought $1 billion of mortgage-linked securities from the bank because they knew betting in the housing market was risky, the executive's lawyer said at the start of a civil fraud trial on Monday.
The attorney for defendant Brian Stoker, 41, was responding to a U.S. Securities and Exchange Commission lawyer who told the Manhattan federal jury that Stoker, the main manager on the securities deal, should be held responsible for the 2007 transaction because he did not disclose that the bank was betting against it.
Investors were sophisticated and knew the risks of betting on the housing market through so-called synthetic collateralized debt obligations defense attorney John Keker told the nine jurors.
"The synthetic CDO market is high-stakes, high-level gambling," Keker said. "However you feel about gambling ... this was legal gambling."
Stoker, a former director at the New York bank's CDO structuring desk, was the only individual charged in a broader case against Citigroup brought by the SEC in October.
U.S. District Judge Jed Rakoff in Manhattan, who is overseeing the trial, rejected late last year a $285 million settlement between Citigroup and the SEC over the investments.
Rakoff said at the time that failure to require the bank to admit or deny the commission's fraud charges left him no way to know whether the settlement was fair. Stoker did not participate in that settlement and Rakoff allowed his case to proceed to trial.
If Stoker, who lives in Pound Ridge, New York, is convicted on two civil counts of securities fraud, his punishment could include being barred from the financial industry and an order to disgorge any profits from the conduct, as well as fines.
The SEC's case arose from allegations that Citigroup, betting on a housing downturn, in 2007 sold a $1 billion pool of securities known as Class V Funding III without telling investors it had taken a $500 million "short" position on expectations that some of the securities would fail.
The transaction caused more than $700 million in investor losses, the SEC said.
Stoker was negligent because he "did not disclose any information that a reasonable investor would want to know before buying some of these securities," SEC lawyer Jeffrey Infelise said in his opening statement on Monday.
"Even though he should have known that Citigroup had bet against those assets ... the evidence will show the defendant actively marketed those assets."
Keker, of San Francisco firm Keker & Van Nest, told the jury his client was unfairly singled out. He reminded jurors not to conflate any possible ill will against Citigroup or the housing crisis with Stoker's case.
"Brian Stoker acted reasonably," Keker said. This case is not about "how you feel about Citigroup, not about how you feel about this high-stakes gambling."
Stoker's trial is expected to last two weeks and he will likely take the stand in his own defense, the judge said during the jury's lunch break.
The case is SEC v. Stoker, U.S. District Court, Southern District of New York, No. 11-cv-7387.