A new study by Dain C. Donelson, Matthew Kubic, and Sara Toynbee, published in the Journal of Accounting and Economics, delves into the patterns of enforcement actions by the Securities and Exchange Commission (SEC), uncovering a significant increase in activity in September each year. This phenomenon, termed the „September spike,“ suggests a potential inconsistency in regulatory practices that may stem from the pressures of performance reporting.
The researchers examined over 13,000 SEC enforcement actions spanning two decades, revealing that the SEC staff is almost twice as likely to file enforcement actions in September as in any other month. This spike is not solely due to procedural cases or an acceleration of case filings but appears linked to a strategic pursuit of less complex cases and more lenient sanctions to boost annual case totals before the fiscal year ends.
This pattern of enforcement raises questions about the implications of performance-reporting pressures within regulatory bodies. The study hypothesizes that the SEC’s focus on quantitative metrics, such as case filings to showcase annual performance, may inadvertently lead to a misalignment of incentives and objectives, prompting staff to favor quantity over the severity or complexity of cases.
Moreover, the research shows that this spike is more pronounced during periods of political pressure or when the SEC’s budget is strained, further suggesting that external and internal pressures significantly influence enforcement practices. The findings challenge the consistency of regulatory enforcement and call for a reassessment of performance metrics that prioritize meaningful enforcement actions over numerical targets.
For stakeholders and observers of regulatory practices, these insights shed light on the dynamics within one of the U.S.’s key regulatory bodies and suggest a need for careful consideration of how performance incentives are structured.
To explore more about this intriguing phenomenon and its broader implications, the full study is available here.
4