(Bloomberg News) Citigroup Inc.'s $285 million settlement with the U.S. Securities and Exchange Commission over mortgage-backed securities was rejected by federal judge who said he hadn't been given enough facts to approve it.

U.S. District Judge Jed Rakoff in Manhattan rejected the settlement in an opinion released today and set a trial date. He has criticized the SEC's practice of letting financial institutions such as New York-based Citigroup settle without admitting or denying liability.

Citigroup, the third-biggest U.S. lender, agreed last month to settle a claim by the SEC that it misled investors in a $1 billion CDO linked to subprime residential mortgage securities. Investors lost about $700 million, according to the agency. A trial could establish conclusions that investors could use against Citigroup, as could a new settlement that includes admissions by the bank.

"In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth," Rakoff wrote in the opinion. The proposed settlement is "neither fair, nor reasonable, nor adequate, nor in the public interest," he said.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment pending a review of the decision. SEC spokesman John Nester declined to comment immediately on the ruling.

Trial Date

Rakoff today consolidated the case with another SEC suit involving former Citigroup employee Brian Stoker and scheduled the combined case for trial on July 16, 2012. The parties may try to reach a revised settlement, which must be approved by Rakoff to take effect.

At a hearing this month, Rakoff asked whether the public interest doesn't require determining whether Citigroup did what the SEC claims. Matthew Martens, the SEC's chief litigation counsel, told Rakoff that the agency adopted its policy of allowing settlements without admission or denial of liability in 1972 to avoid having defendants claim publicly they hadn't done anything wrong after agreeing to settle.

Citigroup doesn't want to formally admit liability because of the bad publicity that would follow and because an admission would give a powerful tool to investors suing the bank, said Mark Fickes, a former senior trial counsel at the SEC and now a partner at BraunHagey & Borden LLP in San Francisco.

Avoid Uncertainty