Dec 27 (Reuters) - The U.S. Securities and Exchange Commissionwon a delay in its securities fraud lawsuit against Citigroup Inc, as the regulator tries to appeal a judge's decision to reject its $285 million settlement with the bank.

The case will be put on hold until a motions panel on Jan. 17 begins considering the SEC's bid for a longer delay so it can pursue an expedited appeal, the 2nd U.S. Circuit Court of Appeals in New York said in its order on Tuesday afternoon.

That order was made public 78 seconds before U.S. District Judge Jed Rakoff, who rejected the Citigroup settlement last month, issued a ruling opposing any delay in the case, court records show. Citigroup supported the SEC's request for a delay.

The rulings come as the SEC tries to ensure it can continue settling enforcement cases without requiring corporate defendants to address whether they did anything wrong.

That practice was called into question when Rakoff on Nov. 28 harshly rejected the proposed settlement with New York-based Citigroup.

He said the SEC's failure to require Citigroup to admit or deny its charges left him no way to know whether the settlement was fair. Rakoff also called the $285 million payout "pocket change" for the third-largest U.S. bank.

But the SEC said that ruling was "legal error," at odds with decades of court decisions allowing such settlements and letting investors get faster recoveries, and could affect its ability to reach similar accords with other companies.

SEC spokesman John Nester declined to comment. Citigroup spokeswoman Danielle Romero-Apsilos repeated that the bank disagreed with Rakoff's Nov. 28 decision, and would have "substantial factual and legal defenses" at a trial.

The Oct. 19 settlement was intended to resolve charges that Citigroup sold $1 billion of risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt, and caused more than $700 million of losses.

Citigroup's $285 million payment was to include $160 million of disgorged profit and fees, $30 million of interest and a $95 million civil fine.

IRREPARABLE HARM, OR ILLUSORY HARM?

In a filing on Tuesday morning with the 2nd Circuit, the SEC said the urgency to put the case on hold came after Rakoff in a teleconference this month told Citigroup to answer the charges by Jan. 3, 2012 - or 27 days sooner than federal rules require.

An answer can force Citigroup to deny some or all of the SEC allegations, or seek to dismiss the case entirely.

But this would cause the SEC "irreparable harm" by forcing it to devote substantial resources to the case, and would "disrupt a central negotiated provision" in which Citigroup agreed not to deny the allegations, the regulator said.

In his decision on Tuesday, which the motions panel may choose to follow or not follow, Rakoff said it is "patently clear" there was no statutory basis to appeal his Nov. 28 ruling, and "derail the orderly conduct" of the case.

The judge said this was because the appeal focused on his alleged error in demanding more facts about the case, rather than on the injunctive relief provided by the settlement.

He also said the alleged harm faced by the SEC was "largely illusory" because the regulator is pursuing a related case arising out of the same facts against a Citigroup employee, director Brian Stoker, who contests the regulator's charges.

The SEC has asked Congress for authority to seek larger penalties in corporate cases than the law now allows.

Rakoff has set a July 16, 2012 trial date.

The cases are SEC v Citigroup Global Markets Inc, 2nd U.S. Circuit Court of Appeals, No. 11-05227; and U.S. District Court, Southern District of New York, No. 11-07387.

For the SEC: Jacob Stillman, Jeffre Berger and Mark Pennington.

For Citgroup: Brad Karp, Susanna Buergel and Theodore Wells of Paul, Weiss, Rifkind, Wharton & Garrison.

(Reporting by Jonathan Stempel)

Follow us on Twitter: @ReutersLegal