Judge Jed Rakoff today blocked a $285 million settlement between Citigroup (NYSE: C) and the Securities and Exchange Commission. The judge wrote that there is "an overriding public interest in knowing the truth," and he asked that both parties be ready to try the case on July 16, 2012.

The deal between Citigroup and the SEC would have ended the regulator's investigation into charges that Citi misled investors over sales of collateralized debt obligations, or CDOs. As part of the agreement, Citi did not have to admit or deny wrongdoing in its marketing of CDOs. It did, however, agree not to violate antifraud provisions of securities laws again.

Judge Rakoff decided in the end that without more facts, the court could not provide its blessing to the settlement. He wrote that such agreements are "frequently viewed, particularly in the business community, as a cost of doing business." He also stated that "the Court has not been provided with any proven or admitted facts upon which to exercise even a modest degree of independent judgment." Ultimately, Judge Rakoff declared that in a time when market gyrations "have so depressed our economy and debilitated our lives," there "is an overriding public interest in knowing the truth."

This is an important ruling that will have big consequences for Citigroup and for other Wall Street firms. According to ProPublica, Citi's deal with the SEC only covered a "single transaction" even though it was involved in "dozens of similar collateralized debt obligations" that it sold to investors before the crash. Who knows what might turn up in the trial this summer?

ProPublica has also shown that Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM) have also settled similar cases with the SEC without admitting or denying any wrongdoing. Will that practice be allowed to continue? Is this ruling a game-changer for Wall Street?

Regardless of what happens in the future, today's ruling by Judge Rakoff marks a significant victory for honesty and transparency. And it strikes a blow against the cynical deal-making that has undermined our trust in the financial system. Rakoff concluded his ruling by declaring that the "SEC, of all agencies, has a duty ... to see that the truth emerges." I couldn't agree more. Maybe today is the first baby step toward a more honest financial system.