The Securities and Exchange Commission's watchdog is probing allegations that the agency's enforcement chief gave special favors to Citigroup in its $75 million settlement with the bank last summer. The probe was prompted by an anonymous letter forwarded to SEC Inspector General H. David Kotz by Sen. Charles Grassley (R., Iowa) that detailed the allegations. Robert Khuzami, the SEC's enforcement chief, agreed to drop fraud charges against two Citigroup executives after a conversation with a defense lawyer representing the firm who also was a good friend of Khuzami's, the letter alleged. In July, the SEC announced Citigroup had agreed to pay $75 million in penalties to settle charges that it had misled investors about its exposure to subprime securities.