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Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-7

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Author Info
Eric W. Zitzewitz (Dartmouth College)

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Abstract

This paper examines the negotiated settlements of 20 market timing and late trading cases, comparing the restitution obtained for shareholders with an estimate of shareholder dilution. This restitution ratio varies from 0.04 to 5, or from 0.1 to 10 if penalties are included. While some of this variation is explained by differences in the defendants' conduct, controlling for this, settlement negotiations that involved New York as well as the Security and Exchange Commission (SEC) resulted in restitution ratios that were higher by a factor of 5-10. An analysis that uses the firms' headquarters location and customers' state of residence as instruments for New York's involvement suggests that this difference is causal, and not the result of New York involving itself in cases likely to lead to large settlements. Given the much larger staff and institutional expertise of the SEC, it is likely that these differences in outcomes are due to differences in effective aggressiveness, not prosecutorial resources. Differences in aggressiveness are consistent with popular conceptions of the regulators' career concerns, as well as with theories of industry focus and regulatory capture.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=2185&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:24

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Related research
Keywords: Security and Exchange Commission; regulatory capture; administrative law; government accountability office; market timing; late trading;

Find related papers by JEL classification:
K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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This page was last updated on 2009-12-30.

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