Civil Penalties Against Public Companies in SEC Enforcement Actions: An Empirical Analysis

Abstract

Civil penalties have become an increasingly important part of the Securities and Exchange Commission’s (SEC) enforcement program. The SEC now routinely obtains large civil penalties in enforcement actions, regularly trumpets those penalties in press releases, and highlights the penalty amounts in its end-of-the-year statistics. Civil penalties are defended on the ground they are necessary to make unlawful conduct costly and painful, and thereby deter misconduct and promote adherence to lawful and ethical standards of behavior. But with respect to one category of cases, civil penalties have always been controversial: when civil penalties are assessed against public companies, the cost of the fines are ultimately borne by the shareholders who are not responsible for the misconduct, and who indeed may have already been harmed thereby. Nevertheless, over the last decade the SEC has moved decidedly in favor of assessing civil penalties when public companies engage in violative conduct. Civil penalties are now the norm and a standard part of the resolution of most public company enforcement actions. This Article is the first attempt to synthesize and analyze a comprehensive dataset of SEC enforcement actions against public companies with an eye to civil penalties. It shows that penalties are not only routine but a central element in most negotiated resolutions of enforcement actions against public companies, as part of a package of relief that reflects what appears to be a studied compromise between statutory charges and monetary sanctions. One trend, which has become more pronounced over the last several years, is for the SEC and public companies, particularly those in the financial services industry, to settle enforcement proceedings through the entry of in-house administrative orders that include non-scienter-based charges, the payment of a civil penalty, and no individual charges