Is the Securities and Exchange Commission becoming more lax? The latest numbers would seem to say so: the SEC brought 574 enforcement actions in fiscal year 2006, the fewest amount since 2001. At the same time, budget constraints and lower staffing levels may have slowed the SEC down, according to the commission and legal experts.

The 8.9 percent decline this past fiscal year reflects a three-year downturn in the number of actions taken by the SEC, which released the findings on Thursday. The decline would be greater if not for the high count of actions the commission brought against delinquent filers. The SEC took 91 such actions this past fiscal year, 16 percent of the total number of actions taken in FY 2006. The SEC contends that its delinquent filing program is an “emerging priority,” according to spokesman John Nester, which is why the regulator now accounts for these cases as a separate line item in its annual report, due out later this month.

Still, the SEC brought more enforcement actions against late filers than most other wrongdoers (see chart, below). Delinquent filer actions were only second to cases involving financial disclosure and reporting, which declined by 25.4 percent over the previous year.

The number of enforcement actions hit a high of 679 cases in fiscal year 2003 and has since declined by 15.5 percentage points to 574 in FY 2006. But “raw number filings” don’t tell the whole story, according to prepared statements made by SEC chairman Christopher Cox. “This has been a banner year for enforcement,” he said. “The SEC went 10-0 in trial court wins this year — our first perfect year in memory. This indicates the SEC is bringing the right cases, and getting solid results for investors and for taxpayers.”

Indeed, Russell Ryan, a former assistant director of enforcement at the SEC, says, “The raw numbers are not as important as the significance of the cases themselves.” The SEC’s more significant cases are more complicated and involve lengthier investigations, he adds. Conversely, the delinquent filing cases generally do not take up as much time as other cases.

Cox noted in his statement that the SEC completed two of the largest settlements in the commission’s history in 2006. One case was against insurance giant AIG ($800 million, related to charges of fraud, bid-rigging, and improper accounting); the other was against mortgage lender Fannie Mae ($400 million, for charges related to a $10.8 billion restatement).

The SEC attributes part of the decline in enforcement actions to shrinking staff levels. The commission’s budget remained flat at $888 million over the past two fiscal years, and the number of staffers in the enforcement division declined during that time by 3.5 percent. However, there are still more employees on the payroll today than there were in 2003, when the enforcement division had 935 workers compared with this year’s 1,189.

A hiring freeze and high turnover of senior positions likely slowed the process of bringing actions against companies, says Ryan, now a partner in the Washington, D.C., office of Atlanta-based King & Spalding LLP. Other legal experts told Dow Jones that the SEC’s budget would need to at least triple to be sufficiently funded. According to Nester, the SEC does plan to increase its staff size by filling vacancies, but has not decided how many new employees it will bring in or when.

Ryan theorizes that the SEC’s enforcement tactics have made a difference. “From my observation, people are much more compliance-oriented now,” he says. “That could account to some degree for the drop-off in the number of cases.”

While the latest numbers and the Government Accountability Office may call the volume of SEC enforcement actions into question, the regulator isn’t shying away from taking on more cases that could lead to enforcement action. Cox recently announced that more charges are ahead for companies and individuals being investigated for backdating stock options.