Are Securities Class Actions 'Supplemental' to SEC Enforcement? An Empirical Analysis

Abstract

Securities class actions have been justified as a necessary supplement to SEC enforcement of Section 10(b) and related securities laws. This paper evaluates that justification by analyzing the targeting and outcomes of securities class actions at the margin, taking into account the targeting and outcomes of SEC enforcement actions. The conclusions are as follows: (a) a substantial number of class actions that survive a motion to dismiss run parallel to SEC actions, yield outcomes that differ dramatically from the outcomes of those SEC actions with respect to penalties imposed on officers, and provide no apparent supplementation; (b) class actions without parallel SEC actions are a mixed bag with respect to targeting [further analysis to be done on this question]; and (c) the outcomes of class actions without parallel SEC actions differ dramatically from the actual outcomes of SEC actions, and appear to differ dramatically from outcomes that would be predicted if the SEC had prosecuted those cases [further analysis to be done on that question]. The paper therefore raises doubt regarding the claim that securities class actions provide a useful supplement to SEC enforcement.