There appears to be some movement in the sale of the 27% of common stock in Citigroup Inc. (C) owned by the U.S. Treasury. The federal government is believed to be ready to announce next month a scheduled trading plan to unload the Citigroup shares, according to a report by Bloomberg News.

The pre-set sales program would mimic the program used by corporate executives to prevent accusations of insider trading. The U.S. Treasury would reveal how many shares it would sell, on what date and at what price. The Treasury’s goal is to maximize return to taxpayers, who coughed up $45 billion in 2008 to help maintain confidence in Citigroup as a viable company. A secondary goal is to maintain market stability, something that would be difficult to do if the Treasury dumped all the shares at once.

While Citigroup’s share price is up about 5% today to $4.35 at around noon, short interest in the financial group is still very strong and rising. In the first half of March, short interest in the stock jumped from 482 million shares to 552 million shares, even though the share price climbed nearly 17% in the same period.

The rise in short interest is virtually all attributable to the Treasury’s stake in Citigroup, and the fact that the agency has already had to cancel the sale once due to Citigroup’s share price falling below the $3.25/share that the government paid for it.

Citigroup’s total float is nearly 21 billion shares, and the stock is usually the most active on the NYSE on any given trading day. Since the first of March, an average of 638 million shares change hands every day.

If the Treasury were to unload the shares at the current price, U.S. taxpayers would earn about $15 billion. That’s a return on investment of 33%. To say nothing of the fact that without the Treasury investment, Citigroup may well have tanked, compounding the damage to the financial system caused by the death of Lehman Brothers.

Still, the shorts have a pretty strong grip on Citigroup shares and it is likely that their strength could increase. If short interest continues to rise, the probability decreases that the Treasury will go ahead with the sale. And if the Treasury goes ahead with the planned scheduled sales anyhow, U.S. taxpayers will realize a far smaller return.

That turn of events would land a nasty political blow to Democrats running for office in November, who would certainly be accused of squandering taxpayer dollars. Of course the Democrats could counter with a lot of harsh rhetoric about speculators and how they are undermining the nation’s economic recovery.

It might make for good political theatre, but it’s a pretty expensive ticket.

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