The SEC Reorganization

Abstract

In 2010, the Securities and Exchange Commission (SEC) announced a significant reorganization of its Enforcement Division, creating five specialized units (SUs) and adopting a matrix reporting structure. Using novel data that reveals topical and geographic variation in specialization, we show that these SUs led to increased enforcement intensity. We find that specialized units follow up on fewer bad tips, complete investigations more quickly, and file more cases as settled charges, consistent with SUs improving efficiency. In contrast, we find no evidence that the SUs focused on more complex cases nor reduced geographic biases in enforcement. The increase in case filings leads to greater aggregate sanctions, but no change in average sanctions. Overall, our results suggest that the reorganization increased detection risk, and using informed insider trading to study misconduct, we find that this increased detection risk may have improved deterrence.

Keywords: Securities and Exchange Commission, Enforcement, Regulatory Design, Specialization, Matrix Reporting

JEL Classification: G18, H11, K22, K42, L51, M48