Signaling that it is time for a new cop to walk the Wall Street beat, the Securities and Exchange Commission accepted the resignation on Monday of its top enforcement officer amid blistering criticism that the commission had failed to protect investors in recent years.
Linda Chatman Thomsen, the embattled director who had led the agency's enforcement division since 2005, tendered her resignation to Mary L. Schapiro, the commission's new chairwoman. A replacement for Ms. Thomsen, 54, has not been named.
Critics say her unit failed to detect and prosecute improprieties among mortgage companies, the nation's brokerage firms and powerful investment advisers and hedge funds that led to the financial crisis.
In recent weeks, the chorus grew as Congress took Ms. Thomsen to task for turning a blind eye to a series of tips years ago that outlined the huge Ponzi scheme that the disgraced financier Bernard L. Madoff is accused of running. Responding to the withering comments, Ms. Schapiro has announced she will streamline some procedures. The agency will eliminate the requirement, put in place during her predecessor's tenure, that commissioners approve all enforcement actions before they are elevated from an inquiry to an investigation and before subpoenas go out.
The enforcement division, which investigates and files civil suits against securities law violators, has also come under criticism from inside the S.E.C. The most recent report from its inspector general reprimanded the enforcement unit for its "common practice" of allowing outside lawyers representing people before the commission to communicate with supervising staff lawyers who are investigating the matters. Such communications may be inappropriate because significant, nonpublic information about investigations could be disclosed, the inspector general's report said.
Still, some investor advocates gave Ms. Thomsen the benefit of the doubt, arguing that her task as enforcement chief was especially difficult because she reported to a chairman, Christopher Cox, who had little appetite for regulating.
"The record of enforcement in recent years has not been a good one," said Barbara Roper, director of investment protection for the Consumer Federation of America. "But the entire message coming from S.E.C. leadership in recent years was to back off from enforcement, so it's very difficult to know what kind of enforcement division head she might have been under different circumstances."
One legal and financial expert, who spoke on condition of anonymity because of his continuing work with the agency, said he recently took a detailed tip to the commission involving improprieties in the bond market but found that enforcement officials he encountered were utterly demoralized. "I got on the conference call with the team assigned to it and they were so apathetic and uninterested," he said. "They didn't want another case. What was the point? Now we have to write another memo and send it upstairs."
Shoring up morale at the agency's enforcement division should be a top priority for Ms. Schapiro, according to Mercer E. Bullard, a securities law professor at the University of Mississippi. "Linda Thomsen was in a tough position because she had a boss who was willing to publicly undercut the staff on enforcement issues," Mr. Bullard said. "Even though there were a lot of enforcement issues during her tenure, publicly pointing fingers at staff is never acceptable."
In accepting Ms. Thomsen's resignation, Ms. Schapiro issued a statement praising her performance. "Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," she said.
Ms. Thomsen said in her own statement that working at the commission was "an extraordinary privilege." Both declined to comment further.
A leading candidate to replace Ms. Thomsen is Robert Khuzami, a former federal prosecutor in Manhattan who has been a top lawyer at Deutsche Bank since 2002.
But his work at the big German bank worries Mr. Bullard. "The issue going in is this: is his perspective too tainted?" he asked. "I think the taint comes from having been an in-house lawyer at a securities firm. They tend to have a less objective perspective on the true culpability of their employers."
As the nation's top securities cop, the S.E.C.'s new enforcement chief must be an investor advocate first and foremost, Ms. Roper said. "In this environment, with all the questions about the independence of our regulatory agencies and the degree to which they serve the industry instead of investors, symbolic gestures are important," she said. "I would like to see people who've earned their reputations as investor advocates in some of those key positions and enforcement is at the top of the list."
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