This is the conclusion to a series of articles examining future trends in securities enforcement.

The SEC has long been the leader in securities enforcement, not just in the United States, but around the globe. Its hard and often visionary work over the years has helped make the U.S. securities markets the envy of the world. The leadership of the agency in areas ranging from the Foreign Corrupt Practices Act to insider trading and corporate governance under Sarbanes Oxley has been emulated around the world. The FCPA, for example, was heavily criticized when first enacted in the 1970s as a statute which would cause the U.S. to lose its competitive edge. Now it has been emulated in many countries that join with the Commission and DOJ in their enforcement efforts. Its campaign against insider trading, on-going since at least the 1980s, is being duplicated in other countries like the UK, where the first criminal insider trading case was brought last year, Sweden, which brought its largest ever insider trading case, and Hong Kong, where the first prison sentences were hand down last year for insider trading.

Now, however, the Securities and Exchange Commission is at a cross road. The opportunities are great, but the pitfalls are many and it has a dismal record in recent years to overcome. As the worst market crisis since the Great Depression begins to slowly subside, there are new calls for regulation and oversight. Following years of deregulation and a free market philosophy which saw regulatory authority more often than not curtailed, there is a recognition that the regulatory landscape has to be redrawn. Congress is poised to act and give regulators such as the SEC, CFTC and others new authority. New regulators may be created. While the precise contours of the new regulations are only now coming into focus, it seems certain that the SEC will receive more authority and more resources.

Through her first year in office, SEC Chairman Mary Schapiro and the other Commissioners have positioned the Commission to take advantage of the new environment. Taking over an embattled agency mired in scandal, Ms. Schapiro moved quickly to stem talk of merging the agency out of existence and has made it a player at the regulatory table, vying for additional authority and recognition. An ambitious list of rule-making projects has been initiated, ranging from short selling to dark pools to investment advisers. New senior staff has been brought in with a mandate to reorganize, rejuvenate and move forward quickly and efficiently.

In enforcement, new Director Robert Khuzami has been busy implementing the Commission’s mandate. To speed the processes Mr. Khuzami has been given authority previously reserved to the Commission to issue formal orders of investigation and authorize the institution of subpoena enforcement actions. To facilitate investigations, more boots are being put on the ground by reorganizing the division and eliminating a layer of management. New processes have been instituted to speed the intake and analysis of tips about possible cases and management expertise for the entire division has been added. All of this is being supplemented with additional expertise that the new specialty groups will bring to the division.

A creative and aggressive approach threads through the case load of the Enforcement Division last year which suggests the program is on the mend. Cases such as Dorozhko, Cuban, Rorech and Condroyer reflect the kind of aggressive approach that has made the SEC the world leader in insider trading enforcement. Others such as INTECH, Equity Services, Ameriprise and Perry Corporation clearly suggest that enforcement is actively policing the markets and the interests of investors.

At the same time, there are cautionary notes on the horizon. Leading the pack is the Bank of America debacle. The Commission’s claims there its investigation was blocked by privilege and that the large penalty offered would send a message to the shareholders about the kind of management at the bank more than earned the court’s scathing rejection.

The lack of market crisis cases despite the huge investment of resources also raises concerns about the effectiveness of enforcement, as does the need to repeatedly replead the complaint in Fraser simply to state a cause of action. Surely after a lengthy investigation of years old conduct by a now bankrupt company the staff can find sufficient facts to state a cause of action.

Likewise, the overly harsh interpretation of SOX 304 in Jenkins, which ironically is built on the fraud in Fraser, also raises significant concerns. Perhaps the Commission’s reading of the statute is supported by a literal reading of the statute text. At the same time however, it represents, at best, questionable enforcement policy. This approach does not encourage management to do a better job of monitoring. Rather, it simply punishes the luckless who had the misfortune of working with those who turned out to be secretly dishonest.

This same approach seems to be driving what is clearly an over reliance on corporate penalties at the expense of the Commission’s traditionally creative approach to the use of ancillary relief to prevent a replication of violations in the future. The settlement in General Electric, for example, may generate big headlines. After those fade, however, there is nothing in place to safeguard the shareholders and the markets from a replication of the wrongful conduct in the future. Yet, in this case, the underlying conduct was at least, in part, in part as unseemly as the infamous Enron barge deal.

The settlement in the Ernst & Young only raises more questions about the focus of enforcement. While the settlement does contain undertakings offered by the firm, their adequacy is at best unclear. There is no evaluation of the procedures offered by the firm or on-going monitoring process. Unfortunately, what is clear is the fact that a key component of the settlement is the payment “in the nature of a penalty.”

The notion that big penalties are a substitute for remedial procedures should have been debunked by the Bank of America deal, where the bank all but said it was simply buying peace while insisting it did nothing wrong. Stated differently, payment of the penalty simply means that the shareholders are out a substantial amount of cash. Bank management is not changing a thing in the future. In the end big penalties for big corporations equal big headlines, nice statistics and good congressional testimony, but not effective enforcement.

The question moving forward is whether the Securities and Exchange Commission can again be the leading securities market regulator. The good workmanlike start to rejuvenating the SEC and its enforcement program should not be confused with returning to the leadership position the agency once enjoyed. Lists of rule-making projects, new management and reorganizations are useful and perhaps saved the SEC from being dismantled but they do not restore the Commission to its position of leadership. Speed and efficiency are all well and good, but they are only a means to an end. Likewise, touting the interests of investors is consistent with the statutory mandate of the agency, but it is not a substitute for a vision of how the federal securities laws will bring a new ethics to the marketplace in a new decade.

If the SEC is to regain its perch as the preeminent securities regulator, it starts with this vision. There is a good start. The systems are in place. Congress is poised to act. Now it is time to roll out the vision and implement it.

Seminar sponsored by the ABA Criminal Justice Section: January 13, 2010, Enforcement Trends in Securities & Commodities Actions 2010, in person in Washington, D.C. at 600 14th St. N.W. 9th Floor and webcast nationally.

Speakers: Adam Safwat, Deputy Chief, Fraud Section, Department of Justice; Steve Obie, Director, Division of Enforcement, CFTC; Laura Josephs, Assistant Director, SEC Division of Enforcement and Cheryl Evans, Special Counsel U.S. Chamber Initiatives For Legal Reform.