The Securities and Exchange Commission may be preparing to pick a legal fight with a federal judge in New York who rejected the agency's $285 million settlement of its fraud case against Citigroup for going easy on the financial giant.

SEC enforcement officials are expected to recommend to the agency's commission that it appeal U.S. District Court Judge Jed S. Rakoff's November decision refusing to approve the settlement, The Wall Street Journal reported Thursday, citing anonymous sources.

Rakoff, a Manhattan-based judge who sits on the bench in the Southern District of New York, in November, rebuked the SEC in an opinion accusing the agency of letting Citigroup off the hook for allegedly duping investors by peddling mortgage-related assets as attractive opportunities.

The SEC's case against Citigroup's U.S. broker-dealer subsidiary focused on a billion-dollar fund created to dump "some dubious assets on misinformed investors," Rakoff said in recounting the agency's allegations. These assets were described as being hand-picked by an independent investment adviser, according to the SEC. Citigroup was also accused of using the fund to bet against investors.

Rakoff lambasted the SEC for securing an $285 million settlement without getting Citigroup to admit any wrongdoing, contending that such deals are viewed as the "cost of doing business"  without any "indication of where the real truth lies."

Rakoff said he had to reject a deal absent of facts in the name of public interest and ordered the parties to prepare for a July 16 trial.

A Citigroup spokeswoman said at the company disagreed with the ruling and would be prepared to defend itself if the SEC's case went to trial.

The rejection of the deal had been seen as a way to get Citigroup to pay more to settle, but the Journal reported that further settlement talks are off. An SEC representative declined comment to the International Business Times.

Robert Khuzami, head of the SEC's enforcement division, had said in response to Rakoff's opinion that the size of the deal is a reflection of the amount the agency could obtain at trial. He also pushed back against Rakoff's assertion that the SEC offered "mere allegations" about Citigroup's conduct, arguing that the agency presented "reasoned conclusions" from a "thorough and careful investigation of the facts."