One day after a government report leveled serious criticism at the Securities and Exchange Commission’s policing of financial markets under past-Chairman Christopher Cox, the agency’s new top cop promised a reinvigorated enforcement division.

Robert Khuzami, who was appointed director of enforcement in February, insisted in prepared testimony that “reinvigorating the SEC’s Enforcement program is a top priority.”

In his testimony, Khuzami noted that “I fully concur” with the recommendations of a Government Accountability Office report, issued publicly for the first time yesterday. That report suggested that policies put in place under Cox had discouraged Enforcement Division attorneys from pursuing financial penalties against corporations in cases of financial fraud. The report also said that it was difficult for SEC investigators to obtain subpoena authority, which frequently forced them to rely on representations made by the corporations under investigation.

Khuzami, who joined the SEC after five years as general counsel for Deutsche Bank, also spent 11 years at the U.S. Attorney’s Office for the Southern District of New York, including three years as chief of the Securities and Commodities Fraud Task Force.

Khuzami noted that the staff of the enforcement division numbers 1,100, but oversees “more than 30,000 registrants, including more than 12,000 public companies, 4,600 mutual fund families, 11,000 investment advisers, 600 transfer agents, and 5,500 broker dealers.”

As a result, he said, he plans to “focus on cases involving the greatest and most immediate harm and on cases that send an outsized message of deterrence.” That comment strongly suggests a return to the SEC enforcement activities of the 2002-2004 time period. During that period, which followed the failures of Enron and Worldcom, total corporate penalties soared from $44 million in 2001 to more than $1 billion in both 2003 and 2004.

During Cox’s tenure, which began in the summer of 2005, penalties fell 84 percent, from a peak of $1.59 billion in fiscal-year 2005 to $256 million in fiscal 2008. Disgorgements fell 68 percent, from a fiscal-year 2006 peak of $2.4 billion to $774.2 million in fiscal-year 2008.

The penalty policies that were criticized by SEC staffers cited in the GAO report were the result of a debate within the SEC, both before and during Cox’s tenure, over whether fining companies simply compounded the damage already done to their shareholders by fraud. In 2006, the SEC issued a series of guidelines that would determine when fines would be levied, which included, in part, whether the company benefited financially from its fraud, and whether shareholders had already suffered. The purpose of those guidelines, stated at the time, was to provide “clarity, consistency, and predictability” to the process of levying financial penalties against companies.

In his testimony, Khuzami said he agreed with the GAO’s recommendation that the SEC evaluate whether that policy had achieved its goals. But he also added a stern description of his own approach: “To me, however, the focus of any penalty policy should be assurance that malefactors get appropriately severe sanctions to sufficiently deter them and others from engaging in similar misconduct in the future.”

Moreover, Khuzami seemed to take direct aim at corporate executives, noting that the SEC must “be as swift as possible” in pursuing corporate wrongdoing. “Corporate institutions are dynamic and ever-changing. People come and go,” Khuzami told his Senate audience. “When a case is brought years after the conduct, the fines and the penalties still hurt, but the opportunity to achieve a permanent change in behavior and culture is greatly reduced.”

The GAO report suggested that policies under Cox “discouraged pursuit of more complicated cases, those based on novel legal reasoning, or those with industrywide implications, in favor of those seen as more routine,” such as small Ponzi schemes, insider trading, and day trading. But Khuzami’s testimony also seemed to suggest that the SEC will refocus its enforcement efforts. “Not a day goes by that I don’t think about how we can stop the next big fraud,” he told the Senators.