Mary L. Schapiro took over a discredited SEC in early 2009 and vowed to rebuild it.

She promised tougher enforcement — “war without quarter” on financial fraud. Modernized rules to keep up with Wall Street. And a new, more effective organization.

Her tenure at the federal agency responsible for protecting investors and policing markets offers a Washington lesson: Even when epic crises create a sense of urgency, it is tough to tighten the reins on powerful industries. Dramatic results can prove elusive.

On Schapiro’s watch, federal judges and other critics have accused the Securities and Exchange Commission of accepting feeble settlements in major cases of alleged corporate wrongdoing. The cases have reinforced the impression that the SEC lacks not only the means but also the mind-set to hold powerful wrongdoers accountable, perhaps because the agency is too close to the world it oversees.

Many new rules have been written, but other proposals have languished — including some that Schapiro says are badly needed.

The SEC remains overstretched, short of expertise and at a technological disadvantage. Though Schapiro has fought for funding to narrow the gap, glaring administrative blunders have weakened her hand and undermined the agency’s moral authority, lawmakers say.

Early in her tenure, Schapiro was summoned to Capitol Hill to account for failures under her predecessor. Now, she is called to answer for stumbles of her own. At a congressional hearing last month, the focus was on one of the SEC’s self-inflicted wounds, an ethics scandal related to fallout from the Bernard Madoff fraud, and the verdict was harsh.

“[W]e are left with an SEC that is sapped of credibility,” Rep. Randy Neugebauer (R-Tex.) said in prepared remarks.

The damage to the public’s trust “is simply unacceptable,” echoed Rep. Elijah E. Cummings (D-Md.).

Schapiro says that she has made significant progress turning the agency around and that there is more to do.

“From the time I arrived here, I worked tirelessly to improve the agency,” she said in an interview. “To some extent it’s a resource question, but there’s also been a tremendous amount accomplished in the last two years that make this agency more effective, stronger and tougher than it’s been in many years.”

Since she took over, the SEC has reorganized its enforcement staff, lowered internal hurdles to its police work and created a centralized database of tips and complaints. Agency officials recently stood up to intense lobbying by business groups and put in place a program that will reward whistleblowers for exposing financial fraud.

But some say she’s had trouble finding her way through a minefield of political and financial interests.

“I think she has tried to please everyone all the time and in doing so has pleased no one,” said Lynn E. Turner, former chief accountant at the SEC and a boardroom veteran.

Enter Schapiro

When President-elect Obama picked Schapiro in December 2008 to head the SEC, the agency’s reputation was in tatters. The SEC had taken a hands-off approach to overseeing investment houses such as Bear Stearns and Lehman Brothers while they sowed the seeds of their own destruction, pushing the global financial system to the brink of collapse.

Meanwhile, Madoff’s Ponzi scheme had grown into a colossal fraud as the SEC fumbled one warning after another.

Schapiro had spent much of her career as a government regulator, rising to acting chairman of the SEC and chairman of the Commodity Futures Trading Commission. After that, she ran FINRA, a self-regulatory group for the brokerage industry, where she made $3.26 million in salary and other compensation in 2008.

At her SEC confirmation hearing, she rejected the argument that she was a safe, predictable pick who lacked a history of being tough on Wall Street.

“I’m absolutely committed to building a Securities and Exchange Commission that is of the quality, the integrity and the aggressiveness that the American people deserve,” she said.

As Schapiro assembled a new leadership team for the SEC, she tapped a Goldman Sachs executive to head one division and a top lawyer for Deutsche Bank to head another. For general counsel, she picked a lawyer from a prominent firm who had previously worked at the agency.

The appointments followed a familiar logic. Regulators frequently draw staff members from the industries they regulate, saying it’s impossible to function without industry expertise.

The revolving door spins both ways. SEC employees often aim to work in the financial sector or corporate law firms, where they can earn much more money.

“If I can’t leave and go to the industry after five years or 10 years, if I’m doomed to stay at the SEC for life, maybe I’ll never go in the first place,” Schapiro said at her confirmation hearing.

A key test of the agency’s mettle came in one of the first cases to emerge from the financial crisis.

The SEC accused Bank of America of deceiving investors when it sought their approval to acquire Merrill Lynch during the worst of the Wall Street meltdown in 2008. The agency alleged that Bank of America failed to adequately disclose plans to allow billions of dollars in bonuses to be paid to Merrill Lynch executives. But the SEC charged no individual Bank of America employees with wrongdoing, saying they had not conspired to deceive investors.

In settlement talks with the bank, the SEC originally negotiated a fine of $33 million, which paled beside the $5.8 billion in executive bonuses the bank allegedly concealed. And, according to a federal judge, it was the shareholders who would pay the fine, so the enforcement action merely compounded their injury.

At a time when the public is clamoring for financial executives to be held responsible for the damage their companies have caused, the case showed how much difficulty the SEC can have punishing wrongdoing in a meaningful way.

The deal seemed to be “a contrivance designed to provide the S.E.C. with the facade of enforcement,” U.S. District Judge Jed S. Rakoff wrote in 2009, forcing the agency to renegotiate.

A report by the SEC’s inspector general pulled back the curtain on the usually opaque inner workings of the enforcement process. The report found that Bank of America, widely considered too big to fail, may have been deemed too important to discipline to the full extent of the law.

As a penalty, the SEC could have taken action that would have made it harder for Bank of America to raise money quickly. The SEC’s corporate finance division initially opposed cutting the bank slack. But at the bank’s urging, SEC officials agreed to do just that — because the bank had received federal bailout money, and the sanction “could have had an adverse impact on BofA and the entire market,” the inspector general reported.

The internal agency watchdog said he found no evidence that the SEC staff seriously considered charging individuals at the bank until after the initial settlement was filed with the court. The inspector general said SEC staff members who worked on the case “were unaware” of all the legal grounds on which individuals could be charged.

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.

‘High-frequency trading’

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.

“It’s predatory,” said Sal L. Arnuk, co-head of equity trading at the independent brokerage Themis Trading and a participant in SEC-sponsored discussions about high-frequency trading.

Under current rules, it may be entirely legal.

The SEC spotlighted the issue in a January 2010 document asking for the public’s help evaluating the issue. More than a year and a half later, the agency is still studying it and has not reached conclusions, officials said.

The SEC has taken some steps that might help it get a handle on high-frequency trading. It passed a rule in July that would require brokerage firms to help it track the transactions of large traders, and the agency is working on a plan, floated in May 2010 but not yet adopted, that would require stock exchanges to build a central database of all trades.

Taking aim at one facet of the issue, the SEC proposed a ban in 2009 on “flash orders,” in which exchanges let certain traders see orders to buy or sell shares a fraction of a second before the quotes reach the broader public.

“That momentary headstart . . . could produce inequities in the markets,” the SEC said.

Two years later, the proposed rule remains on the drawing board.

Asked to explain the delay, SEC spokesman John Nester said the agency staff has been busy working on many rules.

Even in one of its most basic roles, the SEC is spread thin.

To expose frauds like Madoff’s, the SEC conducts routine examinations of firms known as investment advisers. But there are about 26 times as many firms as SEC examiners. So the SEC has been examining those firms an average of once every 11 years, according to an agency study. One third have never been examined, Schapiro said.

Now, strapped for funds, the agency is considering outsourcing the inspections to an industry self-regulatory group. One candidate: FINRA, the organization formerly headed by Schapiro.

Agency’s stumbles

As Schapiro struggles to overcome long-standing problems, the challenges have grown.

President Obama and congressional Democrats responded to the financial crisis by greatly expanding the agency’s power and responsibilities. House Republicans have resisted giving the SEC a budget to match. They say, in part, that the SEC should make better use of the money it has and that tough economic times call for fiscal restraint.

Republicans opposed the regulatory expansion, and some now argue that the agency should be reined in. In the short term, Congress’s effort to strengthen the SEC has strained it. The Dodd-Frank act that Congress passed last year punted many of the tough decisions to the SEC and left the agency with the job of writing dozens of complex new regulations under intense pressure from industry lobbies.

White House spokeswoman Amy Brundage said by e-mail that Obama is grateful for Schapiro’s “tireless work to ensure that the Commission is effectively fulfilling its mission.” In a statement, Treasury Secretary Timothy F. Geithner said she “has done a superb job.”

But a series of embarrassments has undercut the SEC’s arguments on Capitol Hill for more money.

For example, one of the SEC’s biggest initiatives in years, a plan to make it easier for shareholders to oust members of corporate boards, was struck down by a court that said the agency, by inadequately analyzing the potential costs, failed to do its homework. The July court ruling demanded so much of the SEC that it could make it difficult for the agency to implement future regulations.

Last month, the agency’s inspector general accused it of letting then-general counsel David M. Becker help shape SEC policy toward Madoff victims even though he had a personal stake in the matter.

Becker’s mother had owned an investment account with Madoff that was liquidated after she died. Becker was a beneficiary of the estate. Late last year, a trustee in the Madoff bankruptcy sued Becker and his brothers to recapture about $1.5 million of “fictitious profit” — the payout on the account above and beyond what Becker’s parents had invested.

By the time he was sued, Becker had helped frame SEC policy on how much money Madoff investors should be allowed to keep or recoup.

Becker has denied that he had a conflict of interest, and he has noted that he told Schapiro about his mother’s account.

Schapiro recently testified that at the time she did not see how the account would relate to the decisions the SEC was making. But she also said she participated in a decision to keep the matter out of the congressional spotlight by sending someone other than Becker to explain the SEC’s position at a 2009 hearing.

In another controversy, a member of the enforcement staff has been alleging that the SEC has routinely broken the law by purging records of inquiries it has closed without taking enforcement action or conducting full-fledged investigations.

The information could be used to hold the agency accountable and detect patterns of wrongdoing over time.

The official, Darcy Flynn, last year notified the National Archives, which oversees the preservation of government records. In July, Flynn’s attorney reported his allegations to a member of the Senate and invoked whistleblower protection. Last month, Flynn alleged that the document destruction included a wider array of case files and was still occurring a year after the National Archives demanded an explanation from the SEC.

Khuzami, the enforcement director, has said it is likely the SEC disposed of some documents involving Madoff and cases it decided not to pursue against firms such as Goldman Sachs, Bank of America and Lehman Brothers.

But, in a written response to questions from Sen. Charles E. Grassley (R-Iowa), Khuzami said the agency does not believe current or future investigations have been harmed, and he said much of the discarded material could be reassembled.

Then there was the no-bid real estate deal. After signing a 10-year, $557 million lease without competitive bidding last year, the SEC determined that it did not need and could not pay for the downtown Washington office space.

The SEC had correctly anticipated that Congress would broaden the agency’s responsibilities, but it jumped the gun and mistakenly assumed that a budget increase would be forthcoming.

At a House hearing on the office lease titled “The Securities and Exchange Commission’s $500 Million Fleecing of America,” Schapiro delivered a mea culpa — and a defense that raised even more questions about her management.

Although she approved the lease, she said, she did not know that the building in question was farther than walking distance from the agency’s Washington headquarters.

Unable to hire the many employees Schapiro says the agency needs, the SEC has been looking for other tenants to fill its space.