The Mode-C vail is in place to prevent GA aircraft from flying around without transponders and conflicting with IFR traffic. However, I can tell you that I frequently see aircraft operating without transponders or with inoperative transponders within a Class Bravo mode-C vail almost every day.
As for the penaties....I'm not sure. Sometimes I'll see approach control track the primary target to an airport and then follow up with a control tower or airport management. Most of the time though, there is no punitive action. If FSDO were notified they would be the final authority in disciplinary action.