The SEC\u27s Shift to Administrative Proceedings: An Empirical Assessment

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 district 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 proceedingsinvolving non-financial companies. Corresponding with the increase in civil penalties for administrative proceedings, we show an increase in two proxies for the complexity of the nature 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 nature of the securities law violation, we report evidence that the egregiousness of the offense or the priority the SEC places on the action decreased for administrative proceedings after the enactment of Dodd-Frank. Overall, we conclude that the SEC has shifted weaker and/or lower priority cases to administrative proceedings post-Dodd Frank, allowing the agency to bring more cases. 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 ramp up its enforcement efforts against public companies resulting in more marginal actions being brought in that forum