SEC chairman Harvey Pitt said: "We reserve our harshest treatment for those kinds of companies."

Destruction of documents, lying by company executives and other obstruction would bring harsh punishment, he warned.

In the wake of the Enron collapse and accounting problems at other big companies, he acknowledged that average investors had a right to feel the deck was stacked against them.

"I don't think that would be an irrational fear among investors," Mr Pitt said. But he added that problems at individual companies should not lead people to believe the market overall was corrupt or unsafe.

"Enron is tragic but it is not indicative of corporate America as a whole," he said.

The SEC is pursuing a civil investigation of bankrupt Enron and Andersen, its former auditor.

On Thursday, settlement talks between Andersen and the Justice Department abruptly collapsed after a lawyer for the accounting firm notified the federal prosecutors that Andersen was not in a position to make a decision on any criminal settlement.

Andersen was indicted last month on an obstruction of justice charge for the massive shredding of Enron-related documents after the SEC had begun its inquiry last autumn. The settlement talks intensified after the Government accepted a plea agreement from David Duncan, the former senior Andersen auditor on the Enron account.

Mr Pitt said Andersen could be allowed to continue to audit and approve financial statements that companies filed with the SEC - its core business - if it could show that it could "meet the highest standards possible". If the firm was convicted, Andersen would, like any firm, be barred from SEC work, Mr Pitt said.

In what he called "a very aggressive effort", the SEC proposed new rules requiring firms to file quarterly and annual reports faster and to disclose more information. Mr Pitt also proposed a new oversight body to replace the present system in which the industry largely polices itself.

Legislation to establish such a body is moving through the House, but Mr Pitt said that he believed most Enron-inspired changes should be made through the SEC rather than by Congress.

Mr Pitt acknowledged that independence of auditors was a critical problem but warned against simplistic solutions banning accounting firms from also providing consulting, tax and other services to companies whose books they audited.

Congress is weighing such bans, which were advocated by Mr Pitt's predecessor in the Clinton administration, Arthur Levitt, and are fiercely opposed by the accounting industry.

The SEC also is examining Wall Street analysts who have come under public fire for perceived conflicts of interest.

Ten of 15 analysts who followed Enron still rated it as a buy or strong buy as late as November 8, two weeks after the SEC announced it had opened an inquiry into the energy-trading giant. Houston- based Enron slid into the biggest bankruptcy in US history on December 2.

Mr Pitt said his agency planned to put new conflict rules in place soon.

"New facts have been brought to our attention," Mr Pitt said, in New York State's investigation into alleged conflicts and possible fraud by analysts at big brokerage houses including Merrill Lynch.

The state's attorney-general, Eliot Spitzer, recently released documents and e-mails showing that Merrill analysts privately used profanities to describe some stocks and the words "disaster" and "dog" for others while publicly recommending that investors buy the companies' shares.

Mr Pitt called the e-mails "distressing ... they are not something that inspires confidence".

SEC officials were briefed on the New York investigation on Wednesday, but Mr Pitt would not say whether the federal agency might join the probe.