SEC Investigations and Securities Class Actions: An Empirical Comparison
Stephen J. Choi
New York University School of Law
Adam C. Pritchard
University of Michigan Law School
August 14, 2014
U of Michigan Law & Econ Research Paper No. 12-022
NYU Law and Economics Research Paper No. 12-38
We compare investigations by the SEC with securities fraud class action filings involving public companies. Using actions with both an SEC investigation and a class action as our baseline, we compare the targeting of SEC-only investigations with class action-only lawsuits. We find that the stock market reacts more negatively to the class actions relative to SEC investigations. Looking at measures of information asymmetry, we find that investors in the market perceive greater information asymmetry following the public announcement of the underlying violation for class-action only lawsuits compared with SEC-only investigations. Turning to sanctions, we find that the incidence and magnitude of settlements, as well as the incidence of top officer resignation, are greater for class action-only lawsuits relative to SEC-only investigations. Our findings are consistent with the private enforcement targeting disclosure violations at least as precisely (if not more) than SEC enforcement.
Number of Pages in PDF File: 36
Keywords: SEC Enforcement, securities class actions
JEL Classification: K22, K42
Date posted: July 16, 2012 ; Last revised: August 15, 2014
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