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This paper examines the interplay between the SEC and misconduct firms under the modified leniency program of 2010. In contrast to prior research that finds the SEC penalizes cooperative violators prior to 2010, we show that the Commission now rewards cooperation after 2010. The post-2010 change is primarily due to the SEC exercising more leniency towards good faith cooperation (e.g., timely disclosure, replacing executives), as opposed to perfunctory actions (e.g., internal investigation). Unlike prior studies, our results are not conditional on firms receiving enforcement actions. We also show that misconduct firms have become reluctant to cooperate under the new regime, indicating violators’ suspicion about the SEC’s intent. Our findings highlight the importance of regulators establishing a clear ex ante incentive structure to limit ex post prosecutorial discretion when operationalizing an effective leniency program. Our results also caution against using SEC sanctions as a proxy for severity of misreporting after 2010.

On the SEC's Enforcement Cooperation Program: A Regime Shift after 2010