Broken Windows: SEC Enforcement of Delinquent Insider Filings

Abstract

The SEC mandates insiders report trading activity by a deadline. Although insiders disregard this requirement 222,613 times from 1988 to 2023, only 0.5% of the violations prompt SEC enforcement action. Comparing enforced to unenforced filing violations we show the SEC pursues insiders who persistently violate the requirement. Evidence also suggests that targeted enforcement has a deterrence on future reporting violations and on other questionable trading practices, such as blackout and stealth trading. We illustrate the deterrence is not limited to the insider experiencing enforcement, and that the strength of the deterrence varies by the insiders' connection to the enforcement action.

Keywords: Enforcement, Security and Exchange Commission (SEC), Insider Trading, Information Asymmetry, Malfeasance, Broken Windows

JEL Classification: G14, G30, G38, K42