Does FOIA Foil the SEC's Intent to Keep Investigations Confidential?

37 Pages Posted: 28 Feb 2020

See all articles by Braiden Coleman

Braiden Coleman

Indiana University - Kelley School of Business - Department of Accounting

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Date Written: February 28, 2020

Abstract

The Securities Exchange Commission (SEC) has a long-standing policy to keep formal investigations confidential. In this study, we examine the extent to which compliance with the Freedom of Information Act (FOIA) provides investors with information about on-going SEC investigations. We exploit a unique empirical setting whereby the SEC denies FOIA requests due to ongoing enforcement proceedings (hereafter, exemption denials). We find that exemption denials predict a substantial number of ongoing and future SEC investigations. Exemption denials are also associated with significant negative future abnormal returns, which is consistent with exemption denials providing a noisy public signal that allows certain sophisticated investors to earn future abnormal returns. Overall, our findings suggest that information transparency laws, such as FOIA, have the potential to limit the SEC’s ability to maintain effective and confidential investigations.

Keywords: SEC Investigations, Freedom of Information Act, Exemption Denials

JEL Classification: G18, K22, M48

Suggested Citation

Coleman, Braiden and Merkley, Kenneth J. and Miller, Brian P. and Pacelli, Joseph, Does FOIA Foil the SEC's Intent to Keep Investigations Confidential? (February 28, 2020). Management Science, Forthcoming, Kelley School of Business Research Paper No. 2020-56, Available at SSRN: https://ssrn.com/abstract=3545838

Braiden Coleman

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2606 (Phone)

Joseph Pacelli (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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