I really like how ProPublica covers the SEC’s $285 million settlement with Citigroup this week. The commission nicked Citi for selling CDOs it created to bet against—without telling the purchasers what it was doing.

ProPublica reports the news, of course, but they also ask questions in their story to show potentially problematic issues that the SEC has left hanging.

Jesse Eisinger and Jake Bernstein know this CDO stuff inside and out and know which questions to ask (see their list at the end of their piece). Among them: Why did the SEC only charge one low-level banker when there appears to be evidence against others?

Here’s Robert Khuzami, the SEC’s head of enforcement, as quoted in The New York Times:

“The securities laws demand that investors receive more care and candor than Citigroup provided” to investors in the security, said Robert Khuzami, director of the S.E.C.’s enforcement division, referring to Wednesday’s action. “Investors were not informed that Citigroup had decided to bet against them and had helped to choose the assets that would determine who won or lost.”

That passive voice in the second sentence there is illustrative. “Investors were not informed” by some unknown party that it was screwing them. Imagine that.

This is where it’s worth remembering that Khuzami was the top lawyer at CDO-churning Deutsche Bank before he took a spin through the SEC’s revolving door. Not only that, but, according to The Wall Street Journal:

As part of that job, he worked with lawyers who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors. The group included more than 100 lawyers who also defended the bank against lawsuits and vetted other financial products, these people said.

Deutsche Bank has faced allegations of inadequate disclosure over its creation of CDOs.

Sorry to keep bringing this up, but that’s just a huge conflict of interest, isn’t it? Why is this guy overseeing CDO enforcement cases for the SEC?

So who else at Citigroup knew about this particular CDO scheme? ProPublica:

In October 2006, people from Citi’s trading desk approached Stoker about shorting deals that Citi arranged. Later, in Nov 3, 2006, Stoker’s immediate boss inquired about Class V Funding III. Stoker told his boss that he hoped the deal would go through. He wrote that the Citi trading group had taken a position in the deal. Citi’s trading desk was shorting Class V Funding III, betting that its value would fall. Stoker noted that Citi shouldn’t tell Credit Suisse officials what was going on, and that Credit Suisse had agreed to be the manager of the CDO “even though they don’t get to pick the assets.’’ Less than two weeks later, this executive pressed Stoker to make sure that their group at Citi got “credit” for the profits on the short.

This Citi official, unnamed in the complaint, was not charged by the SEC.

That information is from the SEC’s own complaint, which leads Eisinger and Bernstein to ask, reasonably:

Responsibility for these practices did not begin or end with Mr. Stoker. Among the questions still unanswered: How much did Stoker’s immediate bosses know? What did the heads of Citigroup’s CDO business, fixed income business and trading businesses know about Citi’s CDO dealings?

Bloomberg News is on this track too, with a story headlined “Citibank Case Shows SEC Struggling to Punish Top Bank Officers for Crisis,” which implies that the SEC wants to punish top bank officers for their roles in the crisis. The story is better:

A central piece of evidence against Citigroup Inc. that led to a $285 million settlement with the Securities and Exchange Commission is an e-mail message from a former employee to his supervisor.

“Don’t tell” a counterparty that Citigroup is shorting the security, former employee Brian Stoker wrote in 2006 to his unnamed supervisor. The agency sued Stoker, saying he was responsible for structuring the deal in which Citigroup failed to disclose that it had chosen about half the assets and was betting they would decline in value. No charges were announced against the supervisor.

That detail highlights a pattern in SEC enforcement cases that is drawing criticism from lawyers and lawmakers: Even as the agency has collected $2 billion in penalties from financial firms for wrongdoing related to the 2008 financial crisis, few top executives have been sanctioned, particularly in connection with complex instruments like collateralized-debt obligations.

Stoker was charged with neglect, so why wasn’t his supervisor?

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.