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http://ssrn.com/abstract=1876725
 
 

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Scandal Enforcement at the SEC: The Arc of the Option Backdating Investigations


Stephen J. Choi


New York University School of Law

Adam C. Pritchard


University of Michigan Law School

Anat Carmy Wiechman


New York University (NYU)

January 14, 2013

U of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 11-009
NYU Law and Economics Research Paper No. 11-20

Abstract:     
We study the SEC’s allocation of enforcement resources in the wake of a salient public scandal. We focus on the SEC’s investigations of option backdating in the wake of numerous media articles on the practice of backdating. We find that the SEC shifted its mix of investigations significantly toward backdating investigations and away from investigations involving other accounting issues. We test the hypothesis that SEC pursued more marginal investigations into backdating at the expense of pursuing more egregious accounting issues. Our event study of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over our sample period. We also find that later backdating investigations are less likely to target individuals and less likely to be accompanied by a parallel criminal investigation. Looking at the consequences of the SEC’s backdating investigations, later investigations were more likely to be terminated or produce no monetary penalties. We find that the magnitude of the option backdating accounting errors diminished over time relative to other accounting errors that attracted SEC investigations.

Number of Pages in PDF File: 56

Keywords: Option Backdating, SEC Enforcement

JEL Classification: K22, K23

working papers series





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Date posted: July 5, 2011 ; Last revised: February 4, 2013

Suggested Citation

Choi, Stephen J. and Pritchard, Adam C. and Wiechman, Anat Carmy, Scandal Enforcement at the SEC: The Arc of the Option Backdating Investigations (January 14, 2013). U of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 11-009; NYU Law and Economics Research Paper No. 11-20. Available at SSRN: http://ssrn.com/abstract=1876725 or http://dx.doi.org/10.2139/ssrn.1876725

Contact Information

Stephen J. Choi
New York University School of Law ( email )
40 Washington Square South
New York, NY 10012-1099
United States
Adam C. Pritchard (Contact Author)
University of Michigan Law School ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4048 (Phone)
734-647-7349 (Fax)

Anat Carmy Wiechman
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
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