The SEC as an Entrepreneurial Enforcer
Concerns about entrepreneurial enforcement have been particularly high in the context of securities fraud litigation. Public companies frequently are defendants in securities class actions alleging they issued materially misleading information that inflated their stock price. Skeptical courts have thus created various doctrines in an attempt to narrow the reach of Rule 10b-5 to reduce the […]
James Park is Professor of Law at UCLA School of Law. This post is based on his recent article forthcoming in the Northwestern University Law Review.
Concerns about entrepreneurial enforcement have been particularly high in the context of securities fraud litigation. Public companies frequently are defendants in securities class actions alleging they issued materially misleading information that inflated their stock price. Skeptical courts have thus created various doctrines in an attempt to narrow the reach of Rule 10b-5 to reduce the costs of entrepreneurial securities litigation.
The Securities and Exchange Commission (SEC), the federal administrative agency that regulates securities markets, also has the power to enforce Rule 10b-5 against public companies. Commentators have generally viewed the SEC as a more responsible enforcer than private plaintiffs and their lawyers. Because the SEC and its enforcement attorneys do not personally profit from a successful enforcement action, the SEC has less incentive to aggressively file cases than entrepreneurial enforcers. Congress has thus explicitly exempted the SEC from some of the restrictions it has placed on private securities litigation. On the other hand, for proponents of vigorous enforcement, the private sector has significant advantages over government enforcement. Without entrepreneurial incentive, the SEC is often criticized for not bringing enough challenging cases and settling cases too quickly and for too little.
