A little more than a year ago, Mary Schapiro vowed to revitalize a demoralized, embarrassed and beleaguered Securities and Exchange Commission. At the time, no one was sure the new chairwoman could pull off the changes needed to keep alive the agency, which had failed to detect Bernard Madoff's $65 billion fraud and the looming collapses of now-defunct Lehman Brothers Holdings Inc. and Bear Stearns Cos.   

In fact, Washington insiders were betting that the SEC was destined to be subsumed under the Federal Reserve. Itself lambasted for inadequate supervision of investment banks, the Fed was nonetheless being handed ever more responsibilities. And with Lehman Brothers gone, Bear folded into J.P. Morgan Chase & Co., and Merrill Lynch & Co. a part of Bank of America Corp., just whom would the SEC be regulating and what would guide its relations with the Fed?

The SEC's existence is no longer in question. Thanks in part to Schapiro's appointment of an aggressive new enforcement chief, the creation of a market-savvy risk unit and an ambitious rulemaking agenda, the SEC has survived to regulate another day. Nevertheless, big questions about the agency's relevance and mission remain.

With a proposed budget of nearly $1.3 billion, Schapiro says the commission is concentrating on delivering on its primary mission -- protecting investors. "There are other agencies of government that touch on what we do," she told the Senate Banking Committee in March of last year. "But Congress created only one agency with the mandate to be the investors' advocate."

Schapiro brought in Robert Khuzami, a former federal prosecutor and Wall Street attorney, to head the enforcement division. At the crux of Khuzami's effort is the commission's new Office of Market Intelligence, a clearinghouse for tips and referrals that stream into the SEC. The agency also created five investigative units with the hopes of bringing in a cadre of specialists. Among other things, the groups are focusing on structured products and securitization -- at the heart of the biggest losses of the financial crisis.

Enforcement is also more nimble. Schapiro's much-derided predecessor, Christopher Cox, had made sure investigators were hamstrung: They had to get permission from all five commissioners before opening any investigation involving a subpoena and before negotiating financial penalties against corporations. Schapiro lifted both restrictions. In 2009, the enforcement division sought 71 temporary restraining orders to halt misconduct and prevent further harm to investors, an increase of 82% from 2008.

Khuzami has also been given more power to develop witnesses in securities fraud schemes by using tactics such as immunity for witnesses, widely employed at the Justice Department.

But tough talk and Schapiro's victory in overhauling enforcement have been offset by complaints that she's too cozy with Wall Street and special interest groups at the expense of investors. In December, Schapiro and the commission approved a rule that requires about 1,600 U.S. fund managers to submit to surprise audits, 83% fewer than expected when the rule was first proposed. The revision came after intense lobbying by fund companies.

In October, Schapiro delayed plans to give investors more power to decide who sits on corporate boards after the U.S. Chamber of Commerce questioned the SEC's jurisdiction.

The SEC also voted in February to continue recognizing a select group of private credit-ratings agencies to determine if money-fund assets are safe. The mutual fund industry lobbied hard for that decision -- fund managers can defer to the agencies and avoid doing due diligence and making such judgments on their own. Investors say a system has been left in place in which credit raters, whose spectacularly wrong ratings over the past decade helped make the crisis possible, remain subservient to the debt issuers who pay their fees.

Then there have been embarrassments in the courts. In September, U.S. District Judge Jed Rakoff rejected as too low a proposed $33 million settlement between the commission and Bank of America over disclosure issues related to its merger with Merrill Lynch & Co. and told the SEC and Bank of America to prepare to go to trial. On Feb. 4, the SEC and the bank offered up a revised settlement in which BofA agreed to pay a $150 million penalty and promised to abide by certain corporate governance measures.

The judge accepted that deal but not before calling it "half-baked justice at best." And in arguing for the second settlement, the SEC found itself defending the behavior and reasoning of Bank of America, a turning of the tables that many observers found strange.

"That was atrocious," says Charles Elson, professor of corporate governance at the University of Delaware. "Rakoff was right. You don't punish shareholders for what management did."

Then in March, U.S. District Judge William H. Pauley in New York rejected a move by the agency to relax rules against close contact between investment bankers and analysts, put in place after the dot-com bust. Both cases point to ongoing tensions between the agency and the Office of New York State Attorney General -- in the case of the analysts, then-New York AG Eliot Spitzer stepped into the jurisdictional void left by the inaction of Cox's SEC.

Now Andrew Cuomo has been riding hard on questions of who knew what with respect to BofA's deal to buy Merrill in 2008. Cuomo has sued the bank, former CEO Ken Lewis and former CFO Joe Price in New York State Court for allegedly failing to disclose billions of dollars of losses at Merrill. By going after individuals, Cuomo has moved way beyond any enforcement the SEC appears willing to contemplate.

The SEC has a better relationship with the Fed. In the summer of 2008, before Lehman went bust, it put in place an information-sharing agreement to ensure that each has the information that the other has in order for each to do its job. In the SEC's case, it gets information about the banks that could affect the brokerages. According to one SEC official, both regulators put the bulk of their resources into the regulated entities (the banks and brokerages), not the holding company.

While the Fed oversees the investment banks that converted to bank holding companies to take advantage of the Fed's liquidity programs, the SEC's role, as the primary regulator of all brokerages doing business in the U.S., including Bank of America Merrill Lynch, Goldman, Sachs & Co., Citigroup Inc. and others, is still critical. It oversees approximately 35,000 entities, including 11,300 investment advisers, 8,000 mutual funds, 5,500 broker-dealers and more than 10,000 public companies, as well as transfer agents, clearing agencies, the stock and options exchanges, and others.

It also took nearly a year to adopt new restrictions on short sales, delays caused in part by intransigent relations among Democrats and Republicans in Congress. In a decision that split along party lines in the commission itself -- one of several -- the SEC adopted a rule to limit short sales on any stock when it declines 10% or more in a single day.

Schapiro's supporters say she strives to be independent. She has said the Obama administration's proposal to designate the Federal Reserve as the nation's systemic-risk regulator needs to be tempered by a strong council of regulators, compared with the administration's weaker council. Even some of her harshest critics, who include Madoff whistleblower Harry Markopolos, say the agency, while moving slowly, is nonetheless improving.

The University of Delaware's Elson, who is quick to credit Schapiro with preserving the agency, also has misgivings about her leadership, in particular presiding over split votes on proxy access, short selling, climate change disclosure and even the settlement in the Bank of America case. "You need to have unanimity," he says. "The agency is small enough that partisan struggles shouldn't play a role." He argues that if the chairwoman can't get a unanimous vote, the proposed rule should be rewritten until she can.

Elson also believes there is a blurring of the agency's essential mission. "The idea should be investor protection," he says. "The commission has gone from investor disclosure to the regulation of conduct. Which it was never about."