The SEC’s approach to the case diverged from that of another law enforcement agency that polices Wall Street — the New York attorney general’s office. Andrew Cuomo, who held the job at the time, decided not to coordinate with the SEC in taking action against Bank of America, “largely because the SEC’s settlement did not include a charge against individuals,” the inspector general reported. Cuomo later filed civil fraud charges against the bank’s former chief executive and chief financial officer.
In February, more than two years after taxpayers bailed out Wall Street, one of the SEC’s five commissioners gave a speech echoing Rakoff’s frustration.
Luis A. Aguilar spelled out his “wishes” for the agency, saying the enforcement division must bring cases with an obvious deterrent effect.
“The possibility of being sanctioned by the commission should not be considered part of the cost of doing business,” he said.
But the regulators say it takes more than outrage to exact punishment.
SEC enforcement officials have said their decisions about whether to charge individuals are based on the law and evidence and factors such as “litigation risk” — the odds of losing a case.
Robert Khuzami, the agency’s enforcement director, said the evidence of wrongdoing can be ambiguous. Or, he said, suspects may have consulted with their company lawyers before engaging in questionable activities, which can raise doubts about whether any violation was intended.
According to an SEC tally, the agency has charged 35 senior corporate officers in cases related to the financial crisis.
“Our record taken as a whole is one of strength and success,” said Lorin L. Reisner, deputy enforcement director.
In recent years, the SEC has waged a high-profile campaign against insider trading, including the case against hedge fund billionaire Raj Rajaratnam, which the Justice Department prosecuted to a criminal conviction. Rajaratnam has said he intends to appeal.
But the SEC has taken only preliminary steps toward addressing another, perhaps bigger, threat: the use of “high-frequency trading” by hedge funds and others, which puts conventional investors at a disadvantage.
Armed with high-powered technology, direct access to stock market computer facilities, and special data feeds, these traders can detect big trades made by others coming across communication lines and act on them within milliseconds or less, some experts say. If the critics’ suspicions are right, the practice yields an unfair advantage similar to that of insider trading, but on an automated, industrial scale.