We compare investigations by the SEC with securities fraud class action filings involving public companies. Using actions with both an SEC investigation and a class action as our baseline, we compare SEC-only investigations with class action-only lawsuits. We find evidence that the stock market reacts more negatively to the class actions relative to SEC investigations. We also find that institutional ownership and stock turnover decline more for class actions compared with SEC investigations. Lastly, the incidence and magnitude of settlements, as well as the incidence of top officer resignation, are greater for class actions relative to SEC investigations. This evidence is consistent with private class actions pursuing more egregious securities law violations than SEC investigations and imposing greater sanctions against companies. At least for the metrics employed here, our findings are consistent with the private enforcement providing at least as much deterrent value, if not more, than public enforcement.
Law | Law and Economics | Securities Law
Date of this Version
Stephen Choi and Adam Pritchard, "SEC Investigations and Securities Class Actions: An Empirical Comparison" (November 2012). University of Michigan Program in Law and Economics. Working Paper 55.