Federal regulators won an initial round Thursday in their defense of Wall Street fraud settlements that include no admission of wrongdoing.

The Securities and Exchange Commission and Citigroup “have a strong likelihood of success” in their joint effort to overturn a judge’s decision to reject their $285 million fraud settlement, a three-judge panel of the 2nd Circuit Court of Appeals wrote.

The SEC and Citigroup have asked the appeals court to declare that U.S. District Court Judge Jed S. Rakoff overstepped his authority last year in rejecting their settlement, one of the biggest to emerge from the financial crisis.

The appeals court panel ruled Thursday that the appeal can go forward, and it agreed to delay a scheduled trial in the case while it is pending.

Thursday’s procedural ruling leaves the substance of the appeal unresolved, and another group of appeals court judges will continue with the case. Nonetheless, the judges who issued Thursday’s ruling sternly criticized Rakoff’s position.

“We have no reason to doubt the S.E.C.’s representation that the settlement it reached is in the public interest,” the appellate panel wrote. “We see no basis for any contention that the S.E.C.’s decision to enter into the settlement was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ ”

Rakoff challenged business as usual at the SEC in November by declaring that without Citigroup’s acknowledgment of wrongdoing, the proposed settlement left in doubt both the truth of the charges and the appropriate size of the penalty. He ordered the two sides to prepare for a July trial.

Rakoff appears to have given too little deference to the SEC’s judgment “on wholly discretionary matters of policy,” the panel wrote.

“While we are not certain we would go so far so to hold that under no circumstances may courts review an agency decision to settle, the scope of a court’s authority to second-guess an agency’s discretionary and policy-based decision to settle is at best minimal,” the appellate judges wrote.

If Rakoff’s ruling survives the appeal, it could force a revolutionary change in the policing of white-collar offenses, not just by the SEC but also by other regulators. Both Rakoff and the 2nd Circuit appeals court are based in Manhattan, where many corporate cases are filed.

The SEC is one of the nation’s top financial cops, policing offenses such as insider trading on Wall Street and fraudulent accounting by companies listed on the stock markets. The agency routinely settles cases instead of taking them to trial and allows defendants to put the civil charges behind them with a boilerplate clause declaring that they neither admit nor deny wrongdoing.

The agency has argued that if it could not settle on those terms, it would have to spend more time and money litigating, which would limit the number of cases it could pursue. Defendants would not ordinarily admit to the allegations, lawyers say, because doing so would expose them to liability in lawsuits filed by purported victims.

“If we had to litigate every case, we would bring a lot fewer cases,” SEC Chairman Mary Schapiro told reporters recently.

In the strongly worded opinion Thursday, the three-judge panel expressed support for the SEC on the crux of the matter. “We question the district court’s apparent view that the public interest is disserved by an agency settlement that does not require the defendant’s admission of liability,” the panel wrote. “Requiring such an admission would in most cases undermine any chance for compromise.”

The panel also said Rakoff was incorrect in asserting that that he had no basis to assess the underlying facts in the case.

In November, Rakoff wrote that the Citigroup fine was in effect pocket change for a company of that size and could be chalked up as a cost of business. But if the charges were unfounded, the $285 million deal could amount to a government shakedown, he essentially argued.

The SEC and Citigroup appealed Rakoff’s decision, and on Thursday the appeals court panel granted their request to put off any trial while it weighs their arguments that Rakoff was out of bounds.

That means the court could ultimately uphold the settlement and spare the SEC from having to prove its case. Alternatively, the appeals court could back Rakoff, giving his position legal force in trial courts throughout the 2nd Circuit.

The appeals court panel said it is “commonplace for settlements to include no binding admission of liability,” adding that “a settlement is by definition a compromise.”

“We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined,” the panel added.

Citigroup and the SEC issued statements that they were pleased with Thursday’s ruling.

The SEC’s approach to settlements “preserves resources that we can use to stop other frauds and protect other victims,” SEC enforcement director Robert Khuzami said.

Citigroup is accused of misleading investors about a portfolio of subprime mortgage securities tied to the sinking housing market. According to the SEC, Citigroup profited at the expense of its misinformed clients.

While marketing the investment in early 2007, the SEC said, Citigroup failed to disclose that it had helped select the assets in the portfolio and had placed a bet that they would decline in value.

Citigroup made at least $160 million on the transaction while investors lost more than $700 million, the agency aid.

The SEC recently modified its policy on settlements, but the change applies only under narrow circumstances. The SEC said it will no longer allow defendants to use the neither-admits-nor-denies language in its civil settlements when the defendants have admitted wrongdoing in related criminal cases.

Rakoff has a track record of pushing the legal envelope. He was previously overturned by a higher court for declaring that the federal death penalty was unconstitutional because justice is fallible and innocent people could be executed.

When the FBI used a lie-detector test to obtain what may have been a false confession in connection with the Sept. 11, 2001, attacks on the World Trade Center, Rakoff ordered the Justice Department to investigate.

Interviewed weeks ago for a profile in The Washington Post, Rakoff said he realized “that there were at least jurisdictional questions as to whether I could order an investigation,” but “what really motivated me was the feeling, ‘We gotta get to the truth.’ ”

Rakoff said getting overturned on appeal was “part of the job.”

“If you’re never reversed on appeal, you probably have taken too narrow a view of the law,” he said in an interview. “You have probably never tried to see the law as a growing instrument that needs to adjust to new situations, that needs to grow, that needs to progress . . . ”

With a hint of humor, Rakoff also made clear that he does not consider appeals courts as infallible.

“If you see some new direction in which the law should go and the parties fairly put it before you in a way that allows you to deal with it in a legally respectable way, but some more conservative or narrow court of appeals thinks you’re wrong, you know, you’re not surprised. And you just hope that as they grow up they’ll get better.”