A Tale of Two Enforcement Venues: Determinants and Consequences of the SEC’s Choice of Enforcement Venue After the Dodd-Frank Act

Abstract

The Dodd-Frank Act allows the SEC to choose either an internal administrative proceeding or a federal district court as an enforcement venue for resolving violations of federal securities laws. I first document that the SEC increased the use of administrative proceedings after Dodd-Frank. I next examine the determinants and consequences of the SEC’s choice of enforcement venue after the Dodd-Frank Act. Results show that more material cases are 28% to 35% more likely to be assigned to federal courts, and politically connected defendants are about 14% more likely to be routed to administrative proceedings. While monetary penalties by venue are statistically indifferent, politically connected defendants in administrative proceedings are associated with lower penalties. Additionally, I find that administrative proceedings process cases 27 times faster than federal courts. This study suggests that the SEC’s private incentives affect its enforcement venue selection and possibly enforcement outcomes. When the political and economic costs (benefits) are greater, the SEC is more likely to use administrative proceedings (federal courts).