SEC Budget Stretched as More Execs Fight Lawsuits

"The agency has brought more financial crisis lawsuits against executives—more than 50 so far—and individuals are often inclined to fight claims that could damage or end their careers. Those cases, which have required years of investigation, are central to the agency's effort to restore its reputation after being battered for more than three years by lawmakers, judges and investors who claimed it hasn't been tough enough in holding Wall Street to account," Bloomberg notes.

"Prolonged courtroom battles could sap resources from the SEC, which has said funding gaps have already diminished its ability to regulate securities markets. That puts regulators in a bind: They need to demonstrate to Congress that they need more resources while not showing any weakness to defendants."

"If you don't have a legitimate trial threat, if you don't communicate to the targets of your investigation that you're prepared to go to trial, then you can be exploited," SEC Enforcement Director Robert Khuzami said in recent testimony before the House Financial Services Committee. "Defendants will simply hold out for a softer settlement and not fear the alternative."

The SEC is litigating at least four cases related to complex financial products linked to residential mortgages.

"It doesn't take many cases to eat up limited resources," Mark Schonfeld, the former head of the SEC's regional office in New York who is now a partner at law firm Gibson Dunn & Crutcher LLP, told the news service. "It's not just an expenditure of resources in the near term; these cases go on for years and years."