The U.S. Securities and Exchange Commission may be forced to pull back on a decade-long effort to make securities firms more accountable for broker fraud. Bloomberg News is reporting that the SEC’s in-house judges have thrown out four of eight “failure to supervise” cases. It cut the penalties sought in three other proceedings.

Industry experts are saying that these losses may make it tougher for the SEC to prosecute such cases in the future. “The SEC staff, emboldened by Levitt, has been pushing the envelope of the law, and the judges have been drawing the line,” says Georgetown University law professor Donald Langevoort.

In response to its failures in court, Bloomberg reports that the SEC is softening up, and pursuing more settlements. Since October 1999, the SEC has settled 24 failure-to- supervise cases, in addition to the eight that were contested.

Stephen Cutler, the SEC’s deputy enforcement director, says the agency is now more willing to accept penalties that ban transgressors from working as supervisors, rather than drumming them out of the business altogether. He said it will also “look very carefully” before taking action against firms
whose procedures may be questionable yet consistent with industry standards.