The Government Accountability Office issued a report yesterday which boils down to a scathing criticism of the SEC under Christopher Cox (who headed the agency from August 2005 to January 2009).

Under former SEC Chairman Christopher Cox, the agency instituted policies that slowed cases and led enforcement-unit lawyers to conclude commissioners opposed fining companies, the Government Accountability Office said in a report today. An unidentified attorney said it was “widely felt” commissioners prevented the division from “doing its job,” according to the report.

“Some investigative attorneys came to see the commission as less of an ally in bringing enforcement actions and more of a barrier,” the GAO said. Cox’s policies “contributed to an adversarial relationship between enforcement and the commission.”
[...]
When Cox became chairman in August 2005, he stepped into a partisan dispute among SEC commissioners over whether it was appropriate to sanction public companies for violating securities laws. Democratic commissioners argued that fines helped deter misconduct. Republicans countered that shareholders ultimately paid SEC penalties.

The SEC issued guidelines in January 2006, stipulating that the agency would consider how much an alleged fraud benefited the company and the impact on shareholders before imposing a fine.

Cox, now 56, set up a procedure in 2007 that required enforcement attorneys to seek approval from commissioners before negotiating corporate penalties. Previously, SEC investigators could enter into settlement talks without obtaining permission.
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The enforcement division’s management and attorneys agreed that the policies led to “fewer and smaller” corporate fines, reduced incentives for corporations to cooperate with SEC investigations and generated a backlog of cases, the GAO said.

In fiscal 2008, the agency extracted about $1 billion of fines and illegal profits from companies and individuals after garnering $1.6 billion in 2007. Penalties exceeded $3 billion in each of the three years preceding 2007.

So it’s not altogether surprising that one of the first tasks of Cox’s successor was to reverse some of the changes instituted by Cox:

Mary Schapiro, who succeeded Cox in January, has tried to restore the SEC’s clout by replacing senior staff and reversing decisions made by her predecessor.
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Schapiro, 53, in February scrapped the policy that required SEC attorneys to get authorization from commissioners before negotiating fines.

In a letter responding to the GAO’s findings, she said it sent the “wrong message to enforcement staff and to the public at a time when the SEC needs to be sending a message that corporate wrongdoing will not be tolerated.” Schapiro said she’s also examining the 2006 policy on corporate fines.