The Securities and Exchange Commission has been in the spotlight for a host of reasons—such as its vote last week to restrict short-selling and renewed charges that it mishandled the Bernie Madoff scandal. Critics on both sides of the issue say the SEC’s shorting rules are inadequate, and the Madoff allegations are, as usual, disturbing.

Now, none of this is really new—not just Madoff and shorting, but the nasty little question that lurks beneath. Simply put, it is this: Is the SEC really up to the task of enforcing the securities laws?

The reason I’m asking this question is because of another nugget of news that emerged from the SEC last week. No press release was issued, only this raw decision. I only found out about it because a blogger I follow, a securities lawyer named Bill Singer, happened to post on it. At issue is a quaint, now-vanished footnote of American financial history called the American Stock Exchange.

It’s a complex story, but it really comes down to the simple question I posed above, as well as other questions that I’ll be coming to in a moment. The answer to all of them is discouraging.

The Amex used to be one of the premiere venues for capital raising by small companies. But over the years it fell into decline. A recurrent issue was that neither the listed companies nor investors were treated properly by traders on the floor. As I reported in BusinessWeek in 1999, the floor traders’ main interest seemed to be to enrich themselves at the expense of everybody else. The SEC in September 2000 settled charges with the Amex and other exchanges, finding that they hadn’t been properly policed themselves.

The SEC found that the Amex didn’t enforce a laundry list of fundamental rules “designed to protect investors and provide some of the primary safeguards against execution abuses by specialists.” Specialists are traders on the floor who have the job of handling customer orders. They're supposed to give customers the best possible prices and to give priority to customer orders over their own trades. The SEC found that they didn't fulfill that fundamental obligation and that the Amex was indifferent to their flouting of the rules.

Pretty serious stuff. The Amex pledged to get right on the job. But it did not.