Mary Schapiro announced this week that she's leaving her post as chairman of the Securities and Exchange Commission after four of the most turbulent years in the agency's history. Elisse Walter, Schapiro's successor, will likely face challenges of her own. After all, last year's "Occupy Wall Street" protestors weren't livid with just the financial industry. They were also mad at the people who were supposed to be policing that sector. On that score, the SEC is first in the firing line. It infamously missed the warning signs related to some of the biggest financial scandals in history, experts say: The collapse of energy giant Enron in 2001, the bankruptcy of Lehman Brothers in 2008 and Bernie Madoff's multibillion-dollar Ponzi scheme in 2009.

To be fair, experts also point out that the agency faces a near-impossible job as the watchdog of Wall Street. Nonetheless, "it's also up to the SEC to manage that expectation," says Michael Josephson, former law professor and founder and president of the nonprofit Josephson Institute of Ethics in Los Angeles. "It knows better than anyone what it can achieve."

Meanwhile, individual investors are learning to do their own due diligence when it comes to choosing brokers and advisers, says Seth Rabinowitz, a partner at management consulting firm Silicon Associates. "For those who do feel protected, they are ill advised to feel so safe," he says. "The SEC regulates what companies disclose, but it often doesn't do a very good job."

The SEC is certainly aware of its Sisyphean task. John Nester, a commission spokesman, says the agency is increasing its case load and becoming more proactive, particularly in the aftermath of the Madoff case. As a result, the SEC has offered increased incentives to potential whistleblowers. It seems to be working: Nester notes that the agency filed 734 enforcement actions for the fiscal year ended Sept. 30, 2012, just one shy of the record number of actions taken in 2011. It also obtained orders requiring the payment of more than $3 billion to harmed investors during the last fiscal year, an 11% increase from the previous year and more than twice the agency's annual budget.

(This story has been updated. It originally ran on Oct. 31, 2011.)

2. "The damage is often done before we get involved."

By the time the SEC takes an enforcement case, the worst of the losses and abuse have occurred, critics charge. Former SEC investigator Gary Aguirre, for example, says that when the regulator launched its investigations of Bank of America, for allegedly misleading shareholders in late 2008 to allegedly speed the purchase of Merrill Lynch, and of Citigroup, for its alleged role in the mortgage and financial crisis, shareholders were already in trouble, as the stocks of both companies had already plummeted. Citigroup settled the case with the SEC for $285 million and BofA paid $150 million to settle the charges. Neither group admitted any wrongdoing. Citigroup declined to comment on the case; BofA was unavailable for comment. In some cases, like with Enron, it's far too late for shareholders to realize any value in their investment. "By then the company is a corpse," Aguirre says.

"The Financial Crisis Inquiry Report" -- the official government report probing the causes of the financial crisis of 2007 to 2010 -- suggests that the SEC was asleep on the job. "The SEC could have required more capital and halted risky practices at the big investment banks. It did not," the report concluded.

SEC spokesman Nester responds that all of the agency's enforcement actions, compliance inspections and rules are both preventative and remedial: "Our enforcement actions seek to hold wrongdoers accountable, return assets to investors and deter future violations," he says. Other experts say it's inevitable that problems will have taken hold in companies before the SEC arrives. Donald C. Langevoort, a professor of law at Georgetown University, says, "Enforcement is almost always after the fact. Just as a prosecutor brings a case after the victim is already dead."

3. "Do as we say, not as we do."

The SEC stresses that firms should keep diligent records and never shred important files. But in fact, the regulator has allegedly done exactly that.

Last year, Sen. Chuck Grassley (R., Iowa) wrote to outgoing SEC Chairman Schapiro regarding accusations by Darcy Flynn, a 13-year veteran of the SEC. Flynn claims that SEC staff destroyed over 9,000 files concerning "matters under inquiry," including cases relating to Madoff, Goldman Sachs trading in American International Group credit default swaps and other such cases. Goldman Sachs and AIG declined to comment.

In a letter, Grassley wrote, "If [Flynn's] allegations are correct, the intentional destruction of at least 9,000 MUIs would appear to greatly handicap the SEC's ability to create patterns in complex cases."

Aguirre, who represents Flynn, says this helps explain why the SEC fails to connect evidence of the biggest frauds, which can often continue for years. This hampers the SEC's ability to keep the markets fair and protect investors and employees from abuse, Aguirre adds.

In a letter to Grassley sent in 2010, Robert Khuzami, the SEC's director of enforcement, maintained that the files in question were "pre-investigation files" to evaluate whether opening up an investigation would be an appropriate use of resources. He added that a significant amount of information was retained and that the practice of destroying files -- or, as Khuzami put it, "document retention guidance" -- was stopped in July 2010. Khuzami wrote: "We do not believe current or future investigations have been harmed."

4. "We may have to scale back our responsibilities."

The U.S. Senate Appropriations Committee last year approved $1.4 billion to fund the SEC, but experts say the agency needs more money to handle increased responsibilities under the Dodd-Frank legislation enacted in the wake of the financial crisis -- or else be forced to cut its cloth according to its measure. A Boston Consulting Group report commissioned by the SEC concluded that a lack of funds is forcing the commission to make some hard tradeoffs. "There are mission-critical activities that the SEC is not performing that force it to make intelligent but hard trade-offs," said the report. The consequences are far-reaching. A stretched SEC is increasingly becoming a worry for baby boomers on the verge of retirement, says Rabinowitz. "Relying on your 401(k) solely for your retirement could be devastating if you are a worker or major shareholder in the next Enron," he adds.

5. "...and we need to better manage the money we do have."

While the SEC has said it needs more money to better police the financial industry, critics say it isn't managing the funds it has well. Case in point: The $550 million leasing scandal. Schapiro admitted in July 2011 that the commission made a "terrible mistake" when it leased a 900,000 square foot space at a newly removed Washington, D.C., office complex before Congress authorized an increase in the agency's staffing and budget. The SEC subsequently canceled the lease for most of the space and says it is transferring its leasing decisions to another government agency. "As chairman of the SEC, I am ultimately responsible for the actions of the agency," Schapiro told a U.S. House of Representatives committee at the time. Nester says no rent has been paid on the property or is due, and says the SEC is now out of the lease.

6. "We can't always protect the most vulnerable."

The SEC is well aware that the elderly are particularly vulnerable when it comes to financial scams. It has even produced a special investment guide for seniors. Unfortunately, the commission is ill-equipped to do much more to protect that age group. "It has not been effective in protecting the older individual investor from scams," says Dana Basney, a certified public accountant at CBIZ Forensic in San Diego. Basney also teaches fraud examination and forensic accounting at the University of San Diego.

The alleged $7.2 billion Stanford Financial Group Ponzi scheme is a case in point. More than 90% of the members of the Stanford Victims Coalition are retirement age or older, says Angela Shaw, founder of the coalition, which represents the interests of the 20,000 investors who allege that they lost money in the scheme. The SEC didn't open an official investigation into the decade-long scheme until 2005. It did flag the scheme as a "matter under inquiry" in 1997, but closed the file after 30 days. "Every year the SEC didn't act, it gave Stanford more legitimacy," Shaw says.

Indeed, older Americans are swindled out of $2.9 billion a year, according to one MetLife study, an increase of more than 12% on a previous study in 2008. Americans over age 65 account for around 13% of the population yet represent nearly one-third of scam victims, according to the U.S Census.

The SEC is not unaware of those numbers. It has made some efforts, such as conducting its own fake "cons" on senior and unsophisticated investors to warn them they need to be vigilant. (For instance, click here and try to invest in this product.) In September 2010, the commission brought actions against two investment advisers for targeting elderly investors. In 2010, the SEC and the Financial Industry Regulatory Authority, Finra, jointly recommended better training, education and review mechanisms for the participating broker-dealers in an effort to combat the rising tide of elderly scams.

7. "Our own employees prove difficult to regulate."

Regulation, like charity, starts at home, say experts. The SEC has had many highly embarrassing incidents of its staff behaving badly. But critics say this won't improve unless they take harsher disciplinary procedures against their own employees. The SEC's Office of Inspector General has uncovered many instances in which SEC employees have fallen short of its own standards of "honesty, integrity and impartiality" by giving preferential treatment to the SEC's regulated entities, downloading pornography on office computers, disclosing or trading of nonpublic information and retaliating against whistle-blowers, according to a July 2011 statement by the Project on Government Oversight, or POGO.

It says that in cases of serious misconduct, the OIG often recommends that the SEC take disciplinary action against the employees and contractors who have violated federal laws or SEC rules: "However, rarely do OIG investigative reports see the light of day, and whether they do or not, the SEC often drags its feet in implementing the OIG's recommendations, or it ignores the recommendations altogether." In recent years, the SEC has strengthened rules requiring the pre-clearance of all trades by staff and also prohibits the trading of all securities of corporations under investigation by the SEC. The SEC declined to comment.

8. "...and our best people leave and work against us."

Many critics of the SEC, including some members of Congress, have charged that the SEC is undermined by the fact that many employees leave to work for companies overseen by the commission. According to a May 2011 survey by the nonprofit Project on Government Oversight, between 2006 and 2010, 219 former SEC employees filed 789 post-employment statements indicating their intention to represent an outside client before the commission. The report concluded that when SEC employees seek work in -- or become employed by -- a company that is involved in an existing SEC inquiry, it could lead to a conflict of interest.

The SEC isn't alone, says Basney: This "revolving door" goes with the territory in any major government institution. He says the best and brightest often move from the public to the private sector: "They have some very bright people," he says.

9. "We're sometimes chummy with Wall Street."

Just ask Gary Aguirre, the former SEC investigator. Aguirre says the SEC fired him in 2005 when his insider trading investigation of hedge fund industry giant Pequot Capital Management got too close to Wall Street banker John Mack, a friend of Pequot co-founder Arthur J. Samberg and the then-future chief executive of Morgan Stanley. Samberg closed Pequot in 2009 after the firm paid $28 million in a settlement with the SEC without admitting wrongdoing.

The SEC decided not to take enforcement proceedings against Mack, former chairman and CEO of Morgan Stanley, in relation to the allegations that he violated insider-trading rules in connection with Pequot.

A Morgan Stanley spokesman said Mack declined to comment for this story.

The Senate Committee on the Judiciary and the Senate Committee on Finance determined that SEC officials were "overly deferential" to Mack because of his prominence and concluded that Aguirre's firing was "intricately connected" to his efforts to examine Mack. Furthermore, a Senate report on the case concluded that "his efforts to obtain approval for questioning Mack led directly to Aguirre's termination." In 2010, the SEC agreed to pay Aguirre $750,000 -- his lost pay and attorney fees -- to settle his claims.

The SEC declined to comment on the case.

10. "We'll miss the next Bernie Madoff."

Experts say that the next Bernie Madoff is probably out there right now lurking in the shadows. The SEC is a minnow compared with the industry it regulates. An organization with some 3,800 employees and a budget of around $1.4 billion will naturally struggle to regulate an industry with 12,000 public companies, 5,500 broker-dealer firms, 670,000 stockbrokers, 4,600 mutual funds and 11,000-plus registered investment advisers, say experts.

The SEC says it has been bringing in new staff with "diverse skill sets" to improve its ability to assess risk and investigate wrongdoing. It has charged 129 individuals or entities with misconduct arising from the financial crisis, according to the latest data, ordered or agreed to $1.5 billion in penalties and charged 57 chief executives and other senior corporate officers. Nester says there are roughly 2,500 cases under investigation at any given time.

What's more, the SEC counters that it has introduced major restructuring to ensure that it doesn't miss the next Madoff. This includes the revitalization of its enforcement division, plus improving its technology system for tracking, analyzing and reporting on the handling of the tips and complaints. But the reality is: Preventing future Ponzi schemes is a hopeless assignment. "It's almost impossible for a government agency to audit these entities and detect fraud," says Basney. "I don't think the SEC or anyone else can do that."