Commission Enforcement Research Articles

The EU Commission: Supplying enforcement and demanding compliance

During the last 20 years, the European Union has been mired in crisis after crisis. At the same time, the number of infringement procedures, the formal requests from the European Commission to member states for compliance, decreased dramatically, despite the addition of 10 member states in 2004. Yet, the link between crises and Commission enforcement activity has not been systematically examined. In this article, I theorize about the role of time, and demonstrate that crises limit the Commission's ability to act as guardian of the treaties. However, crises are not deterministic in nature – the European Parliament and European Union citizens can alter the costs of Commission enforcement. I find that as Euroscepticism increases, the Commission's demand for compliance decreases, in part due to the steep reputational costs to the Commission when member states refuse compliance, especially after sanctions. The number of infringements is also positively correlated with European Parliament action, suggesting that even without formal sanctioning power, the European Parliament plays a role in European Union law enforcement.

Turning assertive? EU rule of law enforcement in the aftermath of the war in Ukraine

When dealing with EU’s rule of law (RoL)-related issues, the Commission has often adopted a forbearance approach and the actions taken have crystallised in soft enforcement mechanisms directed at Poland. However, the use of the Conditionality Regulation as an enforcement instrument in 2022 in relation to (lack of) RoL compliance signalled a change into an assertive approach towards Hungary. Why so? This paper argues that exogenous events may change policy priorities and linkage of issues explain this change. Russian aggression against Ukraine prompted a shift in the priorities of member states’ governments making them more receptive towards EU Commission enforcement actions. The Hungarian government’s friendly attitude towards Russia clashes with the position of most member states and the Commission itself. Orban’s partial isolation makes the Commission more willing to exercise RoL enforcement initiatives. Hence, supranational RoL-related forbearance is, at least in critical situations, affected by the calculus of opportunity that the Commission derives from other policy areas. Empirically, the process is traced through official/public documents and statements made by EU actors.

Stock market reactions to US Consumer Product Safety Commission enforcement actions

AbstractThis study examines stock market reaction to violations of product safety regulations and firm product responsibilities in the post‐enforcement period. Our event study results show that market reaction was negative to failures by firms to report product defects in a timely way. Our results also show that the stock market reaction varies depending on the type of violations, and whether there are single or multiple violations. Firms spend more on research and development and advertising in the post‐enforcement period, in addition to investing in their compliance programmes which have a significant positive impact on product responsibility stewardship. Our empirical results show that the stock market reacts negatively to recall volume and refund remediation strategy. The stock market reaction is negative to social media communication about product recalls initiated by manufacturers. However, this negative effect appears to be counteracted by the positive corporate social responsibility (CSR) reputation effect of the manufacturers. Our findings imply that US manufacturing firms dealing with product recalls must be sensitive to how consumers and investors interpret the communication.

An Event Study of Perindopril (Servier) Reverse Payment Patent Settlements' Case: Is Krka Truly an Exception Within the Pay-For-Delay Commission Decision?

The article aims to fill the gap in the literature on reverse payment patent settlements between patent-holders and generic pharmaceutical firms in EU competition law. Based on the event study of the Perindopril (Servier) case of the European Commission, the research provides a novel assessment of the welfare effects of Commission enforcement and the following judiciary decision on the legality of Commission sanctions. Within the case, the analysis paid particular attention to the generic corporation Krka because Commission fined Krka for the settlement with Servier that did not include the reverse payment, and the Commission decision did not survive the scrutiny of the General Court. The relative economic power of Krka in the perindopril market is also a factor that, together with the enforcement effect assessment, provides a different perspective of the event study's normative implications to the existing research.

Quadrophobia: Strategic Rounding of EPS Data

AbstractManagers’ incentives to round up reported earnings per share (EPS) cause an underrepresentation of the number 4 in the first post-decimal digit of EPS, or “quadrophobia.” We develop a novel measure of aggressive financial reporting practices based on a firm’s history of quadrophobia. Quadrophobia is pervasive, persistent, and successfully predicts future restatements, Securities and Exchange Commission enforcement actions, and class action litigation. It is more pronounced when executive compensation is more closely tied to the stock price and when the firm anticipates violating debt covenants. Quadrophobia is especially strong when rounding-up EPS allows firms to meet analyst expectations, and investors seem not to see through this behavior.

Is My Patient Taking an Unsafe Dietary Supplement?

Dietary supplements do not require premarket approval by the US Food and Drug Administration (FDA), yet they can have side effects; interact with medications, food, or other supplements; or be unsafe, so it is important for clinicians to discuss dietary supplement use with patients. This article provides an overview of dietary supplement requirements related to safety, manufacturing, labeling, advertising, and adverse event reporting; discusses tainted supplements and the FDA's and Federal Trade Commission's enforcement actions against dietary supplements; and offers recommendations to clinicians on matters of key clinical and ethical importance during clinical encounters.

Political connections, tacit power and corporate misconduct

AbstractThis paper examines the impact of political connections (i.e., lobbying and political contributions) on the time it takes to detect corporate misconduct and the size of penalties following securities class actions (SCAs), restatements and Accounting and Auditing Enforcement Releases (AAERs). We find firms with political connections exhibit longer misconduct periods for SCAs, and such ability to conceal misconduct for longer translates into a larger settlement size. In addition, we find politically connected firms are associated with greater shareholder losses and are less likely to be involved in Securities Exchange Commission enforcement actions on restatements. Finally, while we do not find any relation between political connections and the likelihood of AAERs being settled, we find political connections are associated with lower AAER settlement size.

Google and Alibaba’s Different Stock Performances after Antitrust Investigations, the Reasons and Enlightenment

Platform monopoly has attracted wide attention from politicians and the public.. The European Commission has made unremitting efforts in platform antitrust enforcement in the last decade, but together with antitrust investigations, the stock prices of platform giants like Google and Facebook keep breaking their highest points. At the end of 2020, the Chinese government also started antitrust investigations towards platform companies like Alibaba. In contrast, the stock price of Alibaba crashed and lost more than half of its market value. By analyzing their CAR, we proved that the stock performance of Alibaba is significantly worse than Google after their most serious antitrust investigations. The difference reflects investors' different expectations of the European Commission and China's antitrust enforcement. A noteworthy problem then comes out: while the Chinese government is seriously strengthening platform antitrust and putting forward reforms in platform regulation, is there any authority that is able to effectively regulate the international platform giants and maximize the welfare of their users worldwide?

Limits of Law in the Multilevel System: Explaining the European Commission's Toleration of Noncompliance Concerning Pharmaceutical Parallel Trade*

AbstractThis article aims to explain the under‐researched phenomenon of why the European Commission (the Commission), as ‘guardian of the Treaties’, tolerates member states’ noncompliance with the EU law. While major accounts of selective enforcement depict the Commission as a self‐serving political entrepreneur, this paper assumes that it is a trustee guardian of EU treaties that aims to safeguard the stability and integrity of the EU legal order. For this purpose, the Commission is theorized to strategically utilize toleration of noncompliance to evade jurisdiction overlap and norm collision. Relying on the detailed tracing of the Commission's enforcement leniency towards Slovakia regarding pharmaceutical parallel trade, this illustrative case study indicates that toleration of noncompliance is a necessary evil for the Commission and other stakeholders to navigate through a legal and political impasse. And it simultaneously preserves the delicate integrity of the existing legal order of EU free movement law.

Walking the Tightrope: Politicization and the Commission's Enforcement of the SGP*

AbstractRecent research indicates that bottom‐up EU politicization shapes top‐down EU policy enforcement, yet leaves open questions on the pervasiveness of these effects in policy areas that are depoliticized by design. This contribution asks how societal EU politicization shaped the enforcement of the Stability and Growth Pact up until its COVID‐19‐induced suspension. It employs causal process‐tracing to analyse fiscal rule enforcement under varying levels and constellations of EU politicization. Results indicate that enforcement by the European Commission is shaped both by mandate and exogenous pressures created by politicization and the reputational concerns they induce. Moreover, politicization has gradually pushed the Commission towards increasingly flexible enforcement of EU fiscal rules. These conclusions are relevant because they show that politicization permeates even the most depoliticized areas of EU policy. Additionally, they suggest that the SGP's COVID‐19‐induced suspension can be understood as a continuation of existing enforcement strategies.

Corporate governance challenges and opportunities in mitigating corporate fraud in Malaysia

PurposeThis study aims to examine the relationship between corporate governance and the likelihood of corporate fraud in Malaysia.Design/methodology/approachThe sample of fraudulent companies in this study is the public listed companies that were charged with furnishing false statements to the Securities Commission of Malaysia and Bursa Malaysia Securities Berhad and was listed in the Malaysian Securities Commission Enforcement Release from the year 2000 to 2016. The non-fraudulent companies, which are the control companies in this study, were selected from public listed companies listed in Bursa Malaysia, based on their similarity to the fraudulent companies in terms of time, size and industry type. The panel probit regression analysis was used to examine the relationship between corporate governance characteristics and the occurrence of corporate fraud.FindingsThe findings of this study suggest that board size and executive directors’ compensation are the corporate governance characteristics that can effectively combat corporate fraud incidences in Malaysia. The corporate governance features, namely the board of directors’ independence, frequency of board meetings, CEO duality, CEO’s age, and share ownership owned by directors and CEO, do not significantly influence corporate fraud incidences in Malaysia.Originality/valueAlthough previous studies provide inconsistent findings on the association between board size and corporate fraud incidences, this study contributes to the existing literature by providing empirical evidence that smaller board sizes provide more effective monitoring functions to minimize corporate fraud incidences in the Malaysian context. The empirical evidence also supports the agency theory proposition where managers with high compensation will act in the best interest of shareholders and less likely to focus on their interests, thus deterring them from committing fraudulent acts.

Psychological Data Breach Harms

Cybersecurity law, both in statutory and case law, is primarily based on the premise that data breaches result exclusively in financial harms. Intuitively, legal scholarship has largely been focused on financial harms to the exclusion of non-financial harms—emotional and mental—that also arise from data breaches. A critical mass of research in psychology, psychiatry, and internet studies shows that consumers whose information has been compromised suffer from serious emotional and mental conditions as a result. This Article seeks to evaluate cybersecurity law in light of this reality and proposes a framework to address these psychological data breach harms. Psychological data breach harms raise significant challenges for which the law does not adequately account. Consumers suffering these harms are unlikely to pursue litigation and, even if consumers do pursue litigation, are unlikely to prevail because of both standing and cause of action reasons. In a similar vein, different cybersecurity law frameworks, such as the Computer Fraud and Abuse Act, data security laws, data breach notification laws, and Federal Trade Commission enforcement, do not generally recognize any harms that are non-monetary in nature. Moreover, companies suffering data breaches are not legally required to offer any assistance or mitigation response for consumers who may suffer psychological harms. Contributing to these challenges is the fact that breached companies are often not even required to disclose breaches that are unlikely to cause future financial harm. Cybersecurity law currently overlooks a conceptual framework for psychological data breach harms; this Article offers that framework. First, this Article argues for the recognition of psychological data breach harms in the context of cybersecurity, from the very outset. Second, this Article makes concrete recommendations on how psychological data breach harms ought to be addressed, both by regulators and breached entities, as well as the appropriate remedies. Finally, this Article calls for a reconsideration of what we mean by “personal information” and for the expansion of information categories that cybersecurity law should protect.

SEC scrutiny shopping

We examine whether firms exploit enforcement heterogeneity in response to a heightened risk of investigation by regional Securities and Exchange Commission (SEC) enforcement offices. We find that firms facing high SEC scrutiny risks are more likely to relocate outside the jurisdiction of the SEC regional office. The likelihood of out-of-SEC relocation becomes at least two times higher after exogenous shocks to local SEC enforcement. High scrutiny-risk firms tend to migrate to regions with weaker SEC enforcement history and regions with more peers engaging in misbehavior. Scrutiny shopping is more salient for firms with lower costs of relocation.

Coercive Investigation of Corporate Crime: What Investigators Say

This study investigates the use of coercive investigation powers in the context of corporate crime, based on a series of interviews with former Australian Securities and Investments Commission (‘ASIC’) enforcement officials and corporate lawyers. It argues that ASIC’s powers are well equipped to investigate corporate crime, but that ASIC rarely exercises these powers. In this respect, the article draws similar conclusions to the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, but delves further, revealing how coercive powers are used and why they are seldom exercised in corporate criminal investigations. In accounting for this institutional failure, this study implicates a neoliberal agenda of deregulation and austerity that has permitted the regulator to be ‘captured’ by wealthy and powerful regulatees. The analysis is informed by a critical regulation approach to corporate crime that explains corporate or ‘white-collar’ crime and its enforcement through a sociological lens: as a result of unequal social relationships, primarily that of social class, that create disparities in legal and political power.

A ‘Tunney Act for Europe’? Settlement and the Re-Judicialisation of European Commission Competition Enforcement

• The use of settlement mechanisms, administered under both Arts.7 and 9 of Regulation 1/2003, has become one of the most common features of European Commission enforcement activity in recent years. • While settlement in itself is unproblematic, one notable result has been a ‘de-judicialisation’ of EU-level enforcement, whereby such cases are shielded from subsequent review by the Union Courts. This has two potential downsides: a precedent problem, and a legitimacy problem. • In order to address these concerns while continuing to reap some of the benefits of settlement, this article proposes to give the Court of Justice a greater role in overseeing the Commission’s settlement practice, through a judicial pre-approval procedure that might be described as a ‘Tunney Act for Europe’. While EU competition enforcement has seen many changes since enactment of Regulation 1/2003, perhaps the most wide-ranging has been the wholesale embracing of settlement within the European...

Rising to the challenge: the Care Quality Commission's urgent powers

An increase in the Care Quality Commission enforcement activity, a flexing of its powers as a regulator, has been observed throughout health and social care. Sarah Dobson explains what these powers are, how they can affect your organisation and how to bring a legal challenge

What Are You Saying? Using topic to Detect Financial Misreporting

ABSTRACTWe use a machine learning technique to assess whether the thematic content of financial statement disclosures (labeled topic) is incrementally informative in predicting intentional misreporting. Using a Bayesian topic modeling algorithm, we determine and empirically quantify the topic content of a large collection of 10‐K narratives spanning 1994 to 2012. We find that the algorithm produces a valid set of semantically meaningful topics that predict financial misreporting, based on samples of Securities and Exchange Commission (SEC) enforcement actions (Accounting and Auditing Enforcement Releases [AAERs]) and irregularities identified from financial restatements and 10‐K filing amendments. Our out‐of‐sample tests indicate that topic significantly improves the detection of financial misreporting by as much as 59% when added to models based on commonly used financial and textual style variables. Furthermore, models that incorporate topic significantly outperform traditional models when detecting serious revenue recognition and core expense errors. Taken together, our results suggest that the topics discussed in annual report filings and the attention devoted to each topic are useful signals in detecting financial misreporting.

Proceedings From the Clinical and Scientific Innovations in Oral and Maxillofacial Surgery Conference 2019

Proceedings From the Clinical and Scientific Innovations in Oral and Maxillofacial Surgery Conference 2019

Strategic enforcement of anti-discrimination law: A new role for Australia's equality commissions

In Australia, anti-discrimination law is enforced by individuals who lodge a discrimination complaint at a statutory equality commission. The equality commission is responsible for handling complaints and attempting to resolve them. In most instances, the equality commission cannot advise or assist the complainant; it must remain neutral. In other countries, the equality commission plays a role in enforcement, principally by providing complainants with assistance to resolve their complaint including funding litigation. The equality commission's assistance function has been most effective when used strategically as part of a broader enforcement program, rather than on an ad hoc basis. This article discusses equality commission enforcement in the United States of America, Britain, Northern Ireland and Ireland and shows how the equality commissions in those countries have engaged in strategic enforcement in order to develop the law and secure remedies which benefit the wider community, not only the individual complainant. Based on their experience, it is argued that the Australian equality commissions should play a role in enforcement so that they can tackle discrimination more effectively.

Public Enforcement after Kokesh: Evidence from SEC Actions

Disgorgement of ill-gotten gain, similar to an unjust enrichment claim, is a common remedy in United States Securities and Exchange Commission (SEC) enforcement. In June 2017, the Supreme Court held in Kokesh v. SEC that disgorgement is a penalty. As such, the statute of limitations in section 28 U.S.C. § 2462 for any “fine, penalty, or forfeiture” bars the SEC from seeking disgorgement for any violation committed more than five years before suit. The Kokesh decision has reverberated through federal enforcement. Most directly, it bars SEC disgorgement claims for long-running frauds, costing the Agency $1.1 billion to date. As is typical for Supreme Court decisions, Kokesh also raised more questions than it answered. If disgorgement is a penalty, then most other enforcement remedies are also penalties and are thus time limited to five years. Moreover, disgorgement in SEC civil actions is not expressly authorized in any statute. If disgorgement is a penalty, then perhaps the SEC cannot seek disgorgement in court actions at all. More than two years after the Kokesh decision, its impact remains uncertain. Using a unique dataset of over eight thousand SEC enforcement actions filed between 2010 and 2018, this Article unravels the impacts of Kokesh. Depending on how broadly lower courts interpret Kokesh, anywhere between twenty and eighty percent of SEC disgorgement is at risk. At the same time, and contrary to claims advanced by SEC leadership, Kokesh does not substantially undermine the Agency’s abilities to compensate investors or to deter misconduct, but it will certainly change the incentives at work during settlement negotiations. However Kokesh is interpreted, one group of defendants—individuals running long-standing frauds targeting small-scale investors—clearly benefits. Many of them will be able to fleece ordinary people of their nest eggs and then keep the money they stole. Even if such defendants cannot be deterred, the result is corrosive because it offends basic notions of fairness and thus undermines the rule of law.