The rejuvenation of SEC enforcement has been a key focus of the current Commission. A series of rapid fire steps to empower and streamline the enforcement process under a new Chairman and Division director have been repeatedly touted in congressional testimony, speeches and press releases. By all accounts, SEC Enforcement is on the road to recovery. The recent settlements with General Electric (discussed here) and Bank of America (discussed here) seem to confirm this trend: Two big companies settling with the SEC. Over $80 million in total fines paid. Both consent to statutory injunctions. The headlines look good. A closer look changes the view.

Both General Electric and Bank of America center on fraudulent conduct according to the SEC. The General Electric complaint claims that quarter after quarter from 1995 GE made the numbers, an important trend for the company. When the numbers did not add up however, the company used creative accounting otherwise known as cooking the books. To be sure some of the accounting issues such as those regarding hedge accounting are complex and difficult. Those involving revenue recognition and the locomotive deals the company engineered to prematurely recognize revenue in two year end quarters are not. Regardless, there is little doubt that the senior GE accounting and finance people the SEC says made these decisions knew what they were doing.

For intentionally cooking the books GE paid a $50 million fine. The Commission’s investigation as to the company is closed.

What is important about General Electric is what is not part of the settlement. A critical component of SEC enforcement is its remedial nature. Traditionally, the focus of SEC enforcement has been stopping the wrongful conduct and making sure that it does not happen again in the future. Thus a key component of many of the Commission’s settlements is the institution of procedures to ensure future compliance in addition to the usual statutory injunction. Those procedures, which are tailored to the specific circumstances, assure investors, shareholders and the markets that the wrongful conduct will not be repeated in the future.

While the Commission’s press release about the settlement with General Electric makes a vague reference to the fact that it considered the remedial acts and improved controls put in by the company, the only evidence of this is the fact that GE corrected most of the errors during the investigation. While it is important for a company to take such action, making corrections after the regulators show up is not much of an act of contrition and clearly not a substitute for strong procedures safeguarding against future violations.

The other key omission is responsibility. Who cooked the books? This did not happen in a vacuum. The SEC’s press release talks about senior GE employees. The complaint discusses various GE employees who were involved in the wrongful conduct. There is no indication that those employees are being held accountable. Not only should this be a key enforcement priority but, and perhaps more importantly, there can be no assurance against a repetition of the wrongful conduct in the future if those who did the cooking are simply left to do it again.

To be fair, the Commission frequently brings actions against the individuals in separate cases. The resolution of this issue will have to wait for future events. Suffice it to say that concluding an investigation of this type if nobody is responsible would raise serious questions.

The settlement involving Bank of America raises even more questions. Here again, the Commission’s complaint paints a portrait of an intentional fraud. According to the SEC, billions in bonuses for Merrill employees were approved by the board of each company. All of the key players in the deal knew about the bonuses except one group — the shareholders voting to approve the deal. Those shareholders were deceived, the SEC says.

Yet, the only relief obtained by the SEC aside from its standard injunction is a $33 million fine. No procedures were instituted to ensure against future replications of what is clearly fraudulent conduct. No individuals were named in the complaint as being responsible although the SEC does claim its investigation is continuing.

The bottom line to Bank of America is that the shareholders lose twice — once when they were defrauded and then again when the company uses their money to pay a fine for defrauding them.

Bank of America is even more troublesome however because the bank has taken billions in tax payer money under the Troubled Asset Relief program — probably the reason the Inspector General from that program participated in the investigation. This means that part of the settlement may have been funded with taxpayer money. In addition, Congress, the SEC and the public have raised repeated questions about Wall Street bonuses and executive compensation. Congress and the SEC are supposed to be taking steps to deal with these issues. Not so in Bank of America.

The settlement in Bank of America raises so many questions that Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York took the unusual step of refusing to sign the consent decree. Rather, on Monday afternoon, the court will hold a hearing at which the parties will have to justify the settlement in this case. Perhaps the court and the public will learn the answers to basic questions like who was involved, whether tax payer dollars were used and the basis for the $33 million fine.

Ultimately, the critical question here however, is what General Electric and Bank of America say about the SEC enforcement. While these investigations started before the current administration the settlements were approved by the current Commission. Clearly both represent big names and big dollars which generates big headlines and big stats for congressional hearings and press releases. Imposing big fines which are ultimately paid by the shareholders (or perhaps the taxpayers) will not ensure future compliance which should be a law enforcement priority.

Rejuvenating SEC enforcement begin with effective policing of the markets to halt on-going violations and ensure against future infractions. This means identifying the entities involved and installing procedures, supervisors, monitors or other appropriate mechanisms to protect shareholders and the markets in the future. It also means identifying those involved and taking the appropriate action. General Electric and Bank of America both suggest that while SEC enforcement may be changed from what it was, it has missed the road to being Wall Street’s top cop.