Tuesday, September 21, 2010

Do More Criminal Prosecutions and Bigger Fines Equal Deterrence?

Excerpts via SEC ACTIONS.
SEC Enforcement has been revamping and reorganizing in an effort to become more effective and efficient. Part of that process focuses on joint investigations with criminal prosecutors and other regulators. The recently recast Financial Fraud Task Force and the newly created Virginia Financial Fraud Task Force are two examples of SEC Enforcement teaming up with the Department of Justice and the U.S. Attorneys Office. Another part of the rejuvenation appears to be an increased reliance on civil fines. Together, more criminal prosecutions and bigger fines are supposed to caution the market place, resulting in deterrence.
For the 2009/10 time period, the incidents of abnormal trading activity discovered by the FSA is about the same as in prior years. Stated differently, the incidents of suspicious trading activity and abnormal price movements have remained essentially constant. Accordingly, the metrics reported by the FSA do not support the claim that its new program is deterring market abuse. If in fact increased criminal prosecutions and large fines translate to deterrence in the marketplace then the data should show a decrease in suspicious trading and price movements.

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