The federal judge presiding over the settlement of Citigroup with the SEC over deceiving investors on mortgage backed securities claims hammered the agency yesterday, questioning its enforcement decisions.

“Doesn’t the S.E.C. have an interest in what the truth is?” Judge (Jed) Rakoff asked, in reference to the commission’s longstanding practice of not forcing a defendant to admit any wrongdoing when settling a case.

Matthew T. Martens, a senior lawyer at the S.E.C., said that the government believed that the public knew the truth about Citigroup’s conduct because the government’s lawsuit laid out its claims against the bank.

“Last time I checked, correct me if I’m wrong, anyone can make an allegation,” said Judge Rakoff. “The mere fact that you say it’s so does not make it so unless it’s proved.”

The SEC’s director of enforcement and the head of its New York office were in attendance to hear a federal judge tell them how their agency is pathetic. Like most of its other settlements, the SEC will not demand that Citigroup admit wrongdoing in the case, and there are troubling signs that, even though the securities in question are just one among many that Citi issued, they will not face enforcement on any other of their dodgy deals.

Rakoff has a history of criticizing the SEC for their inadequacy. Two years ago has stopped a settlement between the SEC and Bank of America, and the settlement level eventually was raised five-fold. Rakoff asked yesterday why the SEC hasn’t brought contempt changes over any financial firms after they violate securities laws. This was telling:

Mr. Martens, the S.E.C. lawyer, said that the agency felt that there were better and more appropriate ways to deal with chronic misconduct. The S.E.C. has said that striking settlements is often preferable to a costly and protracted lawsuit that it might lose.

Judge Rakoff called the contempt power — a judge’s ability to punish a party for disobeying a court order — “the backbone of the judiciary.” He questioned whether the S.E.C. was really serious about ever seeking an injunction against repeat offenders.

“It’s just for show,” Judge Rakoff said.

The judge also stated flatly that the penalty against the back, $95 million, is 1/7 of the level of the investor losses on the deal. “So the net effect of this is that you’re only returning a small fraction of what the investors lost, yes,” he said.

Rakoff didn’t announce a ruling in the case, saying that he would provide a written opinion later. I’m glad there’s at least someone who sees what a farce this is.