WASHINGTON (Bloomberg) - Mary Schapiro, chairman of the US Securities and Exchange Commission (SEC), said she wanted to show that her agency was cracking down after missing Bernard Madoff's $65 billion Ponzi scheme. In May, she proposed that almost 10,000 money managers undergo surprise inspections to make sure they weren't ripping off clients.

"Investors are looking to the SEC to assure the safekeeping of their assets," Schapiro said at the time. "We cannot let them down."

On December 16, she settled for something less sweeping. Schapiro joined four other commissioners in approving a rule that requires about 1,600 US fund managers to submit to unannounced audits, 83 percent fewer than seven months ago. The revision came after lobbying by fund companies, including executives from T Rowe Price Group Inc., who met with Schapiro, and Legg Mason Inc., who met with another commissioner, SEC records show.

The diminished inspections rule is one of at least four Schapiro announced as a way to protect investors and boost confidence, then later scaled back or delayed. In August, she bought herself more time on a rule to rein in short-sellers, after lobbying by hedge funds. In October, Schapiro put off plans to give investors more power to decide who sits on corporate boards after the US Chamber of Commerce questioned the SEC's jurisdiction.

"I've been driving people very, very hard in this building," Schapiro said in a December 22 interview. "We just don't have the capacity to move any faster. We're still at, I think, a very good pace."

Schapiro became SEC chairman in January, having been nominated by President-elect Barack Obama to attack Wall Street's "culture of greed" and bring the "new ideas, new reforms and new spirit of accountability" to an agency whose failures, Obama said, helped spur the 2008 market meltdown.

In her first year in office, Schapiro's found that issuing proposals is easier than finalizing them. "You get zero points in history for what you proposed," said former SEC Chairman Richard Breeden, who now manages a hedge fund that tries to remove directors at companies he believes are underperforming. "You get points for what you get over the goal line."

The SEC under Schapiro, 54, has suffered some setbacks, including a public humiliation in September by a federal judge who called a proposed $33 million settlement of an enforcement case with Bank of America Corp. a "contrivance".

Even Schapiro's attempts to maintain good relations with Democrats in Congress have prompted SEC Commissioner Kathleen Casey, a Republican, to caution against politicizing an independent agency. Regulation "needs to be driven by data, not politics or unfounded assumptions", the SEC commissioner said at an October public meeting.

"If you go back to my days there were attempts to bring political pressure over some of our cases," said Stanley Sporkin, a retired federal judge who in the 1970s led the SEC unit that investigates corporate fraud. "Everybody at the SEC knows you've got to fight it off. Mary knows that."

Schapiro, who graduated from Franklin and Marshall College in Lancaster, Pennsylvania, before receiving a law degree from George Washington University, has spent more than two decades in financial regulation. She was first a staff attorney at the Commodity Futures Trading Commission (CFTC), followed by stints as an SEC commissioner, chairman of the CFTC and then chief executive officer of the Financial Industry Regulatory Authority, a Wall Street-funded overseer of more than 5,000 US brokerages.

Former SEC officials say Schapiro's strategy of proposing rules and pursuing cases against industries and executives involved in the financial crisis helped rehabilitate the agency's image - even if she has had to change her mind on occasion.

"Sometimes you shoot too fast and you find out there are things you should have thought about first," said Edward Fleischman, a former SEC commissioner who's now a senior counsel at the Linklaters law firm in New York. "She doesn't appear to be a steamroller who says 'I made the proposal so it must be right.'"

At a time when lawmakers were threatening to strip the SEC of power because of failures in policing Wall Street, she helped restore its credibility, former officials said, by cleaning up units that missed Madoff's crimes and proposing regulations for credit-rating companies that assigned top grades to toxic mortgage securities.

"Mary has behaved admirably," said David Ruder, a Republican SEC chairman under President Ronald Reagan who now teaches law at Northwestern University in Chicago. "She has really made an effort to show the commission is revitalising itself."

The SEC is reviewing public comments on the still-unfinished credit-rating rules, which would require companies such as Moody's Investors Service and Standard & Poor's to disclose how much revenue they get from their biggest clients and subject their employees to the same liability standards as auditors.

Schapiro also has yet to complete work on rules for money market funds. After last year's collapse of the $62.5 billion Reserve Primary Fund, the Obama administration called the industry a "significant source of systemic risk". SEC commissioners plan to vote next year on a proposal to force funds to hold a bigger share of their assets in investments that are easy to liquidate.

Other regulatory initiatives, however, are stuck in limbo. After saying in April that she would consider curbs on short- selling, which lawmakers blame for pushing down stock prices, Schapiro has postponed any rules until next year.

The decision followed push back from hedge funds, including Citadel Investment Group LLC, DE Shaw & Co. LP, and Renaissance Technologies Corp. They told the SEC in letters that there was little evidence that bearish traders caused the steep decline of share prices in 2008. The fund managers also said the SEC's plans would damage markets.

The agency may also face lengthy court battles against Angelo Mozilo, the Countrywide Financial Corp. co-founder sued for inappropriate stock sales, and billionaire investor Raj Rajaratnam, who was accused of insider trading. Like some of Schapiro's rule proposals, she can't declare victory until those cases wend their way through the legal system.

"She's taken on the job under extraordinarily difficult conditions, given constant demands from lawmakers and the evolving financial crisis," said Barbara Roper, director of investor protection for the Washington-based Consumer Federation of America. "That's had an impact on what she's been able to accomplish. The next year will be a real proving ground."