When America's biggest banks began to collapse during the presidential election campaign, the SEC became the butt of criticism from both candidates. Then when giant insurer AIG had to be rescued, the candidates agreed on one thing: SEC Chairman Christopher Cox had to go. But the revelation that Madoff affair triggered a demand for an overhaul of regulatory structures. As President Obama observed in the wake of the Madoff shock, “there's not a lot of adult supervision out there.”

In these circumstances the President can hardly be expected to praise regulators, but his statement begs questions. First, what exactly does he mean by “adult”? The SEC actually has 3,500 adults in its employ, all of them wired to catching fraudsters. “The SEC is first and foremost a law enforcement agency,” the agency notes unfortunately, given the latest failure.

And it's pretty good at enforcement, as a perusal of the last ten reports shows. With its enormous resources, expertise and cheerful ruthlessness, the SEC delights in the way it goes after offenders and hauls them before courts to lay bare their deceptions, frauds and plain criminality.

It wins so many cases few miscreants could sleep at night. Like the eight former executives of AOL Time Warner nailed last year over the “round-trip transactions” trick that enabled the company to overstate advertising revenue by some $1bn.

The SEC has also been busy in the wake of the subprime crisis. Two Wall Street brokers were charged with defrauding customers by making more than $1bn in unauthorised purchases of subprime-related instruments. And two former Bear Stearns executives running the firm's biggest hedge funds are in the dock for “fraudulently misleading investors”.

The SEC prides itself on exposing the underbelly of financial markets. In 2006, it initiated no less than 914 investigations, 218 civil proceedings, and 356 administrative proceedings covering everything from corporate fraud to compliance failures at self-regulatory organisations such as stock exchanges.

Sometimes it rounds up miscreants by the truck-load, like the 26 people facing the rigour of the law over a $428m securities scam targeting the retirement savings of senior citizens. If the agency wins this one, which it's likely to do given its record, the ill-gotten gains will be “disgorged”. That is, returned to the victims or, failing that, deposited with the US Treasury. (The SEC doesn't keep recovered loot.)

In recent years the agency has scored several major coups. Long before AIG's latest crisis, it got the same firm over the improper accounting of “sham reinsurance transactions”. That resulted in $800m in disgorgement and penalties. It showed up Fannie Mae for “improper smoothing of earnings in violation of accounting rules” ($350m in penalties). Tyco International was nabbed for “utilising unlawful accounting practices in a scheme to overstate its reported financial results by $1bn. And in 2004 Royal Dutch Shell was cited for overstatement of hydrocarbon reserves ($120m in penalties) in an international cause celebre. In fact, 2004 was a bumper year that produced over $3bn in penalties and disgorgement.

And before that, there was the Enron scandal when the SEC nailed scores of firms. It was the first time, as the agency proudly reported, that any regulator had taken on a member of the Big Four and won.

So added together, there's plenty of adult supervision out there. Every one of the last three SEC chairman has taken this thankless job, vowing to improve accountability, transparency, integrity etc, and has hired extra enforcers to do so.

And yet we still get cataclysmic frauds like that by Mr Madoff. It may be that, in the same way that Wall Street banks were deemed too big to fail, he was too big to investigate. Indeed we know the SEC ignored red lights about Madoff-managed investments, as it did with Enron whose deceptions were revealed by a journalist.

But there may be a deeper explanation why every year the SEC catches so many firms in various forms of fraud from illegal foreign payments to just plain cheating clients. As its filings reveal, a significant percent of the US financial sector is out to game the system. They see it as a set of rules ripe to finesse rather than the embodiment of a code of ethics they are obligated to observe.

In short, a decade of SEC reports suggests the real problem is a systemic failure of integrity that will rebound on the US for years. As President Obama summarised the prevailing climate: “Whatever's good for me, I'll do.” If that's really the way it is, the real challenge for the SEC and other regulators is to find another way because it's pretty obvious that enforcement doesn't cut it. n