The SEC and the Financial Industry: Evidence from Enforcement against Broker-Dealers

Discussion in 'Wall St. News' started by patchie, Dec 18, 2009.

  1. patchie


    The SEC and the Financial Industry: Evidence from Enforcement against Broker-Dealers

    Stavros Gadinis
    Harvard University - Harvard Law School

    August 11, 2009

    Harvard Law and Economics Discussion Paper No. 27


    Recent financial collapses have focused policymakers’ attention on the financial industry. To date, empirical studies have concentrated on corporate issuer activity, such as securities offerings and class actions. This paper makes a first step in studying SEC enforcement against investment banks and brokerage houses. This study suggests that the SEC favors defendants associated with big firms compared to defendants associated with smaller firms in three ways. First, SEC actions against big firms are more likely to involve exclusively corporate liability, with no individuals subject to any regulatory action. Second, the SEC is more likely to choose administrative rather than court proceedings for big-firm defendants, controlling for types of violation and levels of harm to investors. Third, within administrative proceedings, big-firm employees are likely to receive lower sanctions, notably temporary or permanent bars from the industry. To explain this gap, the paper first investigates whether big-firm violations are qualitatively different from small firms’ violations, but finds no support for this. This paper next explores two hypotheses that could explain a systematic bias in enforcement patterns: that constraints in bureaucratic resources weaken the SEC’s negotiating position towards big firms, and that SEC officials favor prospective employers.

    To read the study go here: