WASHINGTON (Reuters) - The top securities regulator defended its proposed $75 million settlement with Citigroup <C.N>, saying the penalty reasonably accounts for the seriousness of the bank's alleged misconduct, according to a document filed in court on Wednesday.

Citigroup had agreed to pay $75 million to settle Securities and Exchange Commission charges that it allegedly failed to disclose subprime exposure to investors in 2007.

But a U.S. judge did not approve the proposed settlement and asked the SEC for more information.

The SEC said the proposal is "fair, reasonable, adequate, in the public interest and should be approved."

According to the complaint filed in July, Citi understated its exposure by about $40 billion in 2007. The bank told investors that its subprime exposure was $13 billion or less, when in fact it was more than $50 billion, the SEC said.

Calls to Citi were not immediately returned.

The SEC had until Wednesday to file its memorandum addressing the judge's questions. A reply from Citigroup is due by Monday, September 13, and then the judge will hold a status conference on September 24.

(Reporting by Rachelle Younglai and Maria Aspan, editing by Matthew Lewis, Gary Hill)