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Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-7

Listed author(s):
  • Zitzewitz Eric W

    ()

    (Dartmouth College)

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: https://www.degruyter.com/view/j/bejeap.2009.9.1/bejeap.2009.9.1.2185/bejeap.2009.9.1.2185.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (June)
Pages: 1-42

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:24
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  1. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169-169.
  2. Andrew W. Lo & A. Craig MacKinlay, 1989. "An Econometric Analysis of Nonsynchronous Trading," NBER Working Papers 2960, National Bureau of Economic Research, Inc.
  3. Kadlec, Gregory B & Patterson, Douglas M, 1999. "A Transactions Data Analysis of Nonsynchronous Trading," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 609-630.
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