The SEC's Shift to Administrative Proceedings: An Empirical Assessment

Abstract

Congress has repeatedly expanded the authority of the SEC to pursue violations of the securities laws in proceedings decided by its own administrative law judges, most recently in the Dodd Frank Act. We report the results from an empirical study of SEC enforcement actions against non-financial public companies to assess the impact of the Dodd Frank Act on the balance between SEC civil court and administrative enforcement actions. We show a general decline in the number of court actions against public companies post Dodd Frank. At the same time, we show an increase in average civil penalties post-Dodd Frank for both court actions and administrative proceedings involving non-financial companies as well as a greater willingness of such companies to cooperate with the SEC, consistent with an increase in the SEC’s leverage in administrative proceedings. We also provide evidence that the mix of cases the SEC brings in administrative proceedings has changed post-Dodd Frank. We show an increase in two proxies for the complexity of the alleged underlying securities law violation, the disgorgement amount and the number of years during which the violation allegedly took place. Despite the increase in the complexity of the securities law violations, we report evidence that the significance of enforcement actions decreased for administrative proceedings after the enactment of Dodd-Frank. Although we cannot measure the deterrent impact of the additional cases that the shift to administrative proceedings has allowed the SEC to bring, it does appear that the SEC is using administrative proceedings to expand its enforcement efforts against public companies. Post-Dodd Frank, the SEC has shifted toward costlier-to-prosecute actions that may reflect weaker and/or less salient cases relative to pre-Dodd Frank administrative proceedings.