A Tale of Two Enforcement Venues: Determinants and Consequences of the SEC’s Choice of Enforcement Venue After the Dodd-Frank Act

The Accounting Review, conditionally accepted

50 Pages Posted: 3 Sep 2020 Last revised: 15 May 2021

See all articles by Xin Zheng

Xin Zheng

University of British Columbia

Date Written: July 17, 2020

Abstract

The Dodd-Frank Act allows the SEC to choose either an internal administrative proceeding or a federal district court as an enforcement venue for resolving violations of federal securities laws. I first document that the SEC increased the use of administrative proceedings after Dodd-Frank. I next examine the determinants and consequences of the SEC’s choice of enforcement venue after the Dodd-Frank Act. Results show that more material cases are 28% to 35% more likely to be assigned to federal courts, and politically connected defendants are about 14% more likely to be routed to administrative proceedings. While monetary penalties by venue are statistically indifferent, politically connected defendants in administrative proceedings are associated with lower penalties. Additionally, I find that administrative proceedings process cases 27 times faster than federal courts. This study suggests that the SEC’s private incentives affect its enforcement venue selection and possibly enforcement outcomes. When the political and economic costs (benefits) are greater, the SEC is more likely to use administrative proceedings (federal courts).

Keywords: SEC enforcement, political connections, SEC administrative proceedings, securities litigation, public enforcement, Dodd-Frank Act

JEL Classification: G18, G28, G38, M41, M48, D72

Suggested Citation

Zheng, Xin, A Tale of Two Enforcement Venues: Determinants and Consequences of the SEC’s Choice of Enforcement Venue After the Dodd-Frank Act (July 17, 2020). The Accounting Review, conditionally accepted, Available at SSRN: https://ssrn.com/abstract=3666336 or http://dx.doi.org/10.2139/ssrn.3666336

Xin Zheng (Contact Author)

University of British Columbia ( email )

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