“The nation’s top securities regulators were asleep at the switch and missed ‘systemic’ problems on Wall Street — a miscue that could have cost investors massive amounts of money, lawmakers said,” writes Deborah Solomon in today’s Wall Street Journal.

“In a hearing by the Senate Banking Committee, lawmakers examining the $1.4 billion settlement with 10 Wall Street firms accused of issuing tainted stock research to investors also alleged that the high-profile agreement doesn’t go far enough to punish wrongdoers. They said the pact hasn’t done anything to change the culture of Wall Street and prevent future abuses.”

” ‘Without holding executives and CEOs personally accountable for the wrongdoing that occurred under their watch, I do not believe that Wall Street will change its ways or that investor confidence will be restored,’ said Alabama Republican Richard Shelby, chairman of the banking committee.”

“The settlement, which seeks to end conflicts of interest between analysts and investment bankers through new rules, stems from charges that Wall Street firms misled investors by issuing overly optimistic stock research in a bid to win stock-underwriting assignments and other investment-banking business. Regulators also accused some firms of improperly doling out hot initial public offerings of stock to the personal brokerage accounts of executives at companies they did business with. As part of the pact with federal and state regulators, the 10 firms didn’t admit or deny the charges.”

“Lawmakers suggested that the self-regulatory system that is in place isn’t adequate to police the industry and enforce the new rules that will be born out of the settlement. “How is it possible that the regulators could have missed for so long the supervisory problems at all 10 of the nation’s top investment firms?” said Sen. Paul Sarbanes, a Maryland Democrat.”

“Securities and Exchange Commission Chairman William Donaldson, whose agency helped broker the settlement, defended the agreement and said the SEC may still bring enforcement action against individuals, including analysts’ bosses.”

” ‘The SEC continues to investigate the roles played by individual securities analysts and their supervisors,’ he told the committee. The settlement already includes lifetime bans from the securities business for two analysts — Jack Grubman, formerly of Citigroup Inc.’s Salomon Smith Barney securities unit (now named simply Smith Barney for the brokerage and research operation), and Henry Blodget, formerly of Merrill Lynch & Co.”