THE SECURITIES AND EXCHANGE Commission is an appropriately bureaucratic-sounding federal agency whose function was, until a few years ago, known mainly to the corporations and Wall Street firms that it regulated. But in the mid-1970s, the SEC began a massive investigation of chicanery by American businesses at home and abroad, and the explosive results became regular fare on television and in newspapers from here to Tokyo.

Under Stanley Sporkin, the dynamic director of SEC's division of enforcement, the young staff took on some of the biggest corporations on the Fortune 500 list. Long lines of limousines appeared daily in front of the commission's headquarters as top executives and their highly paid Washington counsel trooped down the SEC's musty corridors, jammed with boxes of investigative files.

Exxon, Northrop, Gulf, Firestone, ITT, and Occidental Petroleum were among the hundreds of companies whose illegal dealings were revealed. Under prodding from the SEC, companies "voluntarily" disclosed funding political slush funds at home and paying massive amounts of baksheesh or bribes or grease to officials in foreign countries. Governments in Japan, Honduras and Italy fell after disclosure that high-level officials in those countries had been on the take from American business. In the Netherlands, respect for the royal family was shaken when it was disclosed that Prince Bernhard accepted payments from Lockheed to promote sales of the company's warplanes in his country.

It was a heady time for the staff of the small, undermanned regulatory agency. But for Roberta S. Karmel, who was one of the agency's five ruling commissioners from September 1977 to February 1980, it was a period of acute distress.

"The Commission reacted in a moralistic, perhaps even paranoid, manner to the corruption of the Nixon Administration," writes Karmel in Regulation by Prosecution. "After Watergate, government reformers and defiant civil servants were seen as heroes, and the SEC's puritanical witch-hunts captured the fancy of the press. Also, the government was looking for scapegoats outside its own ranks. Business was a natural target."

That's pretty strong language, especially considering that Karmel in the early 1960s served as a prosecutor in the very division of enforcement she so harshly criticizes. Moreover, Karmel, the first female commissioner in the agency's 48-year history, writes at length about her liberal New York Jewish background, which she says made her "pro-labor and in favor of government intervention in the economy, if not outright nationalization of essential industries for the public good."

But between her two tours of government duty, Karmel got a closer look at capitalism as a member of two rich and powerful Wall Street law firms. "My view of the SEC began to change," she writes, "in part because I was looking at the commission from a different perspective. In representing private clients before the Commission, I found much of the staff maddening because they had such a rigid and limited view of the business world."

At the SEC, Karmel never disguised this underlying distrust of the SEC staff members, whom she often chastized even at open meetings. This violated the normally collegial atmosphere of the commission meetings and fellow commissioners who may have respected her opinions nevertheless privately expressed dismay at Karmel's treatment of the staff. Putting her strongly held views to the vote, Karmel filed more dissents than any commissioner before or since.

Her book, then, is an explanation of these actions. It is also a plea to the SEC, in the spirit of the Reagan administration, to support--not criticize--American business, which she believes will, in turn, "move and expand the economy for the general good."

If Karmel's book has a villain it is the "flamboyant" Stanley Sporkin, the brilliant and charismatic bureaucrat whom the author says was granted unusual power by her fellow commissioners--a trust that led inevitably to a runaway enforcement program, she says. Sporkin became enforcement chief in 1974 and soon thereafter kicked off the controversial drive against corporate corruption at home and abroad.

But Karmel also decries the system that created a Sporkin. She blames the elevation of life-long SEC staffers to commissioner (rather than bringing in industry people, presumably to control anti-business bureaucrats) and the powerful influence of Senator William Proxmire, the Wisconsin Democrat and outspoken Sporkin supporter who for years has been one of the few politicians to take any interest in the often complex area of securities law.

In essence, Regulation by Prosecution is a highly technical legal brief which seeks to prove that the SEC, by dint of Sporkin's powerful influence, strayed far beyond its charter. Karmel argues that by various devices the enforcement division caused companies to disclose financial dealings which may have been questionable but were not necessarily illegal.

The main enforcement weapon available to the SEC is the consent decree, which is hammered out between the commission and the defendant and then entered into before a federal judge. In court, the staff's investigative findings are made public and the defendant consents to refrain from further violations of the securities laws while neither admitting nor denying the specific allegations. Sporkin and others argue that this has the remedial effect of forcing questionable corporate behavior into the open. Also, if that behavior is repeated, the SEC can move for criminal contempt sanctions.

Karmel believes that consent decrees are inherently unfair and that many of the SEC's allegations would not hold up in a court of law. However, the SEC simply does not have the finances or the manpower to go to court regularly against corporate defendants with their vast financial resources. Besides, the complex white collar offenses that are typically handled by the SEC are extremely difficult to make intelligible to the ordinary judge, let alone a jury.

I happen to believe that Sporkin was one of the most extraordinarily effective bureaucrats of modern times. That some members of his young staff tended to be overly zealous, as Karmel notes repeatedly, is undeniable. But reviewing the list of specific cases brought against corporations--which Karmel does not do in her book--it is difficult to conceive how the SEC could have turned its back on most of them. After all, the SEC is meant to protect investors, and most of those illegal or at best questionable dealings materially affected the balance sheets of publicly owned companies.

At any rate, Sporkin has moved on to become general counsel of the Central Intelligence Agency and the SEC is now on the kind of benign regulatory course advocated by the author, who has also left the commission and returned to her New York law practice. Significantly, Sporkin's successor, John M. Fedders, a former securities attorney, is quoted on the book's cover as calling it "must reading."

One final note: Roberta Karmel's publisher, Simon and Schuster, is a division of Gulf & Western Corporation. The SEC in 1979 filed suit against G&W and top executives of the company alleging violations of the federal securities laws. After a long and bitter fight, the SEC and the company entered a consent decree. In the spirit of full disclosure, Karmel might have noted in her book that she dissented to the SEC action against Gulf & Western.