The Securities and Exchange Commission's internal watchdog is reviewing an allegation that Robert Khuzami, the agency's top enforcement official, gave preferential treatment to Citigroup Inc executives in the agency's $75 million settlement with the firm, Bloomberg reported on Monday.

The news agency said Inspector General David Kotz opened the probe after a request from U.S. Senator Charles Grassley, an Iowa Republican, who forwarded an unsigned letter making the allegation.

Khuzami told his staff to soften claims against two executives after conferring with a lawyer representing Citigroup, according to the letter, Bloomberg said.

It said a Citigroup spokesman declined to comment.

Citigroup agreed in July to pay $75 million to resolve SEC claims that the bank understated investments linked to subprime mortgages as the housing crisis unfolded.

Former chief financial officer Gary Crittenden and Arthur Tildesley, the firm's former head of investor relations, agreed to pay $100,000 and $80,000, respectively, to resolve related claims. Crittenden and Tildesley, who did not admit or deny the SEC's allegations, were not accused of fraud.

Bloomberg quoted SEC spokesman John Nester as saying the settlement appropriately held the company and individuals accountable.

It was the product of a thorough investigation and a careful evaluation of the evidence and the applicable law. We stand ready to assist and cooperate with the IG's review, Nester said in a statement issued after Khuzami was asked to comment.

(Reporting by Steve James; Editing by Lincoln Feast)

Citigroup Settlement