Abstract

http://ssrn.com/abstract=933333
 
 

References (28)



 
 

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The Legal Penalties for Financial Misrepresentation


Jonathan M. Karpoff


University of Washington - Michael G. Foster School of Business

D. Scott Lee


University of Nevada, Las Vegas - Lee Business School

Gerald S. Martin


American University - Kogod School of Business

May 2, 2007


Abstract:     
This paper provides the first integrated analysis of the complex mix of private and regulatory penalties for financial misrepresentation. We examine the sizes, types, and determinants of legal penalties imposed for all 697 enforcement actions initiated by the Securities and Exchange Commission for financial misrepresentation from 1978 through 2004. These penalties include private class action awards, monetary penalties imposed by the SEC and Department of Justice, and such non-monetary sanctions as censures, trading suspensions, and jail time. Contrary to many criticisms of private lawsuits and regulatory actions, we find that legal penalties are highly systematic, and in particular, are positively related to the size and severity of the harm from the misconduct. The data also indicate deep pockets effects, as both private and regulatory monetary penalties are related to defendants' abilities to pay. A recent increase in regulatory penalties has coincided with a decrease in private monetary penalties, consistent with regulatory penalties crowding out the use of private penalties.

Number of Pages in PDF File: 55

Keywords: Fraud, penalties, Securities and Exchange Commission, financial misrepresentation

JEL Classification: G38, K22, K42, M41, M43

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Date posted: September 29, 2006  

Suggested Citation

Karpoff, Jonathan M. and Lee, D. Scott and Martin, Gerald S., The Legal Penalties for Financial Misrepresentation (May 2, 2007). Available at SSRN: http://ssrn.com/abstract=933333 or http://dx.doi.org/10.2139/ssrn.933333

Contact Information

Jonathan M. Karpoff (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)
D. Scott Lee
University of Nevada, Las Vegas - Lee Business School ( email )
4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
702-895-2526 (Phone)
702-895-4630 (Fax)
HOME PAGE: http://faculty.unlv.edu/slee
Gerald S. Martin
American University - Kogod School of Business ( email )
Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-3914 (Phone)
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