SEC Enforcement: Does Forthright Disclosure and Cooperation Really Matter?

Abstract:     
This study examines the conditions under which the Securities and Exchange Commission (SEC) exercises enforcement leniency following a restatement. I explore whether cooperation with SEC staff and forthright disclosure of a restatement (e.g., disclosures reported in a timely and visible manner) reduce the likelihood of an SEC sanction or SEC monetary penalties. After controlling for restatement severity, I find that cooperation increases the likelihood of being sanctioned, perhaps because it improves the SEC’s ability to build a successful case against the firm. However, cooperation and forthright disclosures are rewarded by the SEC through lower monetary penalties.

Number of Pages in PDF File: 55

Keywords: SEC enforcement actions, accounting restatements, cooperation, voluntary disclosure, press release prominence, AAERs, investigations

JEL Classification: G18, G38, K42, M41

working papers series