A central piece of evidence in the SEC's case against Citigroup was an e-mail message from a former employee to his supervisor.

• Citigroup agreed to a $285mn settlement - subject to approval by a federal judge.
• Employee was sued by the Commission on the grounds he was responsible for structuring the deal in which Citigroup failed to disclose that it had chosen about half the assets and was betting they would decline in value.
• Supervisor was never charged.

Which is why SEC enforcement now faces growing scrutiny.  Yes, it's collected $2 billion in penalties related to the 2008 financial crisis.  But you probably can count on one hand the number of top executives who have been sanctioned - particularly in connection with CDO's and other complex instruments. Investors, lawmakers and judges cite expediency as the reason the SEC doesn't root out wrongdoing by individuals that may have contributed to the crisis.  SEC officials counter by saying the financial crisis largely involved poor decision-making that would not necessarily qualify as illegal. Short of pinning the blame on individuals, Commission enforcement attorneys have discussed issuing a report rebuking the firm’s use of questionable accounting maneuvers.  SEC investigators also are opting to bring more cases based on negligence claims - e.g., failing to disclose - a lower legal standard than intentional or reckless fraud, in order to reach more individuals. Under the Dodd-Frank Act, the SEC can sue an individual who “recklessly” aids a fraud even if the person isn’t aware of the wrongdoing. Previously, lawyers had to show the person knowingly assisted the misconduct.  The law also allows the agency to sue senior officers, directors or other people directly or indirectly accountable for the fraud. Those provisions, passed in 2010, cannot be applied retroactively to conduct connected to the financial crisis. But in some instances, the SEC has developed cases against more senior employees only to balk at bringing claims.

SEC sued Goldman Sachs trader Fabrice Tourre in April 2010 after dropping its claims against supervisor Jonathan Egol, according to notes from interviews conducted by the SEC's inspector general.

When the SEC entered into a $153mn CDO settlement with JPMorgan last June, it sued Edward Steffelin for his role as collateral manager, but did not follow through with possible sanctions against senior executive Michael Llodra.

Tourre and Steffelin are both fighting the SEC claims in court. ALONE! [Bloomberg, 10/20/11]