A federal appeals court on Wednesday handed the Securities and Exchange Commission a big victory by voiding a judge’s pathbreaking decision to reject the regulator’s $285 million fraud settlement with Citigroup.

The U.S. Court of Appeals for the 2nd Circuit in New York said U.S. District Judge Jed S. Rakoff abused his discretion in scuttling the civil accord, saying he failed to give “significant deference” to the SEC and was wrong to require the regulator to show the “truth” of what it alleged.

Rakoff had objected to the SEC’s decades-old policy of letting some corporate defendants settle without admitting or denying its charges.

The decision makes it more likely that the Citigroup accord will win approval, and lawyers said it may make it easier for the SEC to decide on its own how best to enforce securities laws as well as win settlements without worrying that judges may reject them because of a lack of proven facts.

Writing for the appeals court, Judge Rosemary Pooler said it was “an abuse of discretion to require, as the district court did here, that the SEC establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decree.”

“The district court’s failure to make the proper inquiry constitutes legal error,” she added.

Rakoff’s November 2011 rejection of the Citigroup settlement, which concerned a 2007 sale of mortgage-linked securities debt that caused more than $700 million of estimated investor losses, is credited with altering the public debate over SEC settlements that lack admissions of wrongdoing. It prompted other federal judges to scrutinize several similar accords closely.

Last June, citing the need for public accountability, SEC Chair Mary Jo White, a former federal prosecutor, adopted a policy of requiring admissions in certain major cases.

Rakoff must now review the Citigroup settlement again unless he pursues an appeal. One judge on the 2nd Circuit panel, Raymond Lohier, said he would have ordered Rakoff to approve the accord. Circuit Judge Susan Carney was also on the panel.

In an e-mail, Rakoff said: “I don’t think it’s appropriate to comment.”

Andrew Ceresney, chief of the SEC enforcement division, said he was pleased with the decision. He said the SEC will continue to seek admissions of wrongdoing when appropriate, but that settlements lacking them can also serve the public interest by returning money to harmed investors more quickly.

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment.

The decision is a rebuke to Rakoff, who in two decades on the bench has earned a reputation as a brilliant, iconoclastic judge. Rakoff has also been a thorn for the SEC, having in 2009 rejected as a slap on the wrist its original accord with Bank of America over the company’s purchase of Merrill Lynch.

Wednesday’s decision could affect several other pending cases and may make it easier for the SEC to win approval of its $602 million insider trading accord with a unit of billionaire Steven A. Cohen’s SAC Capital Advisors. U.S. District Judge Victor Marrero­ in April 2013 conditioned approval of that accord on the outcome of the Citigroup case.

Citigroup’s settlement was meant to resolve claims that the bank misled investors in 2007 about a $1 billion collateralized debt obligation, Class V Funding III, and simultaneously bet against the debt as the U.S. housing market began to falter.

Rakoff rejected the accord as neither fair, nor adequate, nor in the public interest, saying the “neither admit nor deny” policy left him no facts on which to judge the settlement.

Pooler, however, said such fact-finding should be left for trials, while “consent decrees are primarily about pragmatism.”

— Reuters