On the SEC's Enforcement Cooperation Program: A Regime Shift after 2010

67 Pages Posted: 26 Apr 2018

See all articles by Andrew J. Leone

Andrew J. Leone

University of Miami

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy

Michelle Liu

CUNY Hunter College

Date Written: April 8, 2018

Abstract

This paper examines the interplay between the SEC and misconduct firms under the modified leniency program of 2010. In contrast to prior research that finds the SEC penalizes cooperative violators prior to 2010, we show that the Commission now rewards cooperation after 2010. The post-2010 change is primarily due to the SEC exercising more leniency towards good faith cooperation (e.g., timely disclosure, replacing executives), as opposed to perfunctory actions (e.g., internal investigation). Unlike prior studies, our results are not conditional on firms receiving enforcement actions. We also show that misconduct firms have become reluctant to cooperate under the new regime, indicating violators’ suspicion about the SEC’s intent. Our findings highlight the importance of regulators establishing a clear ex ante incentive structure to limit ex post prosecutorial discretion when operationalizing an effective leniency program. Our results also caution against using SEC sanctions as a proxy for severity of misreporting after 2010.

Keywords: SEC enforcement, Cooperation, Leniency, Prosecutorial discretion

JEL Classification: G18, G38, K42, M14

Suggested Citation

Leone, Andrew J. and Li, Edward Xuejun and Liu, Michelle, On the SEC's Enforcement Cooperation Program: A Regime Shift after 2010 (April 8, 2018). Baruch College Zicklin School of Business Research Paper No. 2018-000. Available at SSRN: https://ssrn.com/abstract=3159112 or http://dx.doi.org/10.2139/ssrn.3159112

Andrew J. Leone

University of Miami ( email )

School of Business
Coral Gables, FL 33146
United States
305-284-3101 (Phone)

HOME PAGE: http://sbaleone.bus.miami.edu

Edward Xuejun Li (Contact Author)

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3235 (Phone)

Michelle Liu

CUNY Hunter College ( email )

695 Park Avenue
New York, NY 10065
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
106
Abstract Views
951
rank
254,713
PlumX Metrics