The SEC’s Enforcement Network

by Verity Winship

What do the Hampshire Constabulary, Texas Railroad Commission, City of Chicago, and the FBI have in common? One answer is that the U.S. Securities and Exchange Commission thanked each of them for assisting the agency in a securities enforcement action. My article, Enforcement Networks, takes advantage of this routine practice to develop a novel approach to quantifying how networks of domestic and international agencies coordinate in civil enforcement. It maps agency coordination through more than 20 years of SEC acknowledgments.

Sources and Methodology

Measuring disparate and dispersed coordination is difficult. This difficulty is particularly acute in the context of investigation and enforcement, which often take place behind closed doors. However, the SEC announces enforcement activity publicly through its litigation releases and press releases. These often close with an acknowledgment of coordination: the SEC “appreciates the assistance of . . .” or “thanks the following agencies for their cooperation and assistance . . . .”

Taking advantage of the SEC’s routine practice, my study uses tools from computer and information science to construct a network from acknowledgements of assistance in the SEC’s public releases. The article reports the results for more than 20 years (1998-2018), mapping the SEC’s acknowledgments as a proxy for the underlying interactions: the enforcement network.

The study allows definitive answers about the acknowledgments: whom the SEC thanked and when. And the information gleaned from the acknowledgments is new. Patterns of acknowledgment are not easily explained by particular categories of cases (e.g., FCPA), by membership in coordinating organizations (e.g., IOSCO), or by entry into more formal agreements (e.g., MOUs).

The information has some inherent limits, of course. By definition, the study does not capture unacknowledged coordination or enforcement actions that do not result in a public release. The results may also reflect changes in how and when the agency acknowledges coordination. Nonetheless, such a study is a particularly useful indirect approach in a context like this where information is difficult to obtain.

Summary of Results

What does the SEC’s network look like?

  • Large and diverse number of entities. The multi-decade study of acknowledgments reveals a network of almost 500 unique entities. They are diverse. The SEC thanks U.S. state, U.S. federal, and non-U.S. entities; big city U.S. Attorney’s Offices; small town police departments; the FBI; self-regulatory organizations; and others.
  • Repeat players and one-shotters. The network is characterized by a mix of repeat players and one-time coordinators. U.S. Attorney’s Offices, the FBI, and FINRA (and its predecessors) account for approximately half of the acknowledgments. However, concentrated interaction with the top repeat players is only one aspect of the network. Overall, single interactions with the SEC prevailed. Almost half of all entities were acknowledged only once, and 70 percent were acknowledged three or fewer times.
  • Domestic and international entities. The results depict an intertwined domestic and international network. Global coordination is part of the story. The SEC acknowledged entities from 77 different international jurisdictions, with Canada, the United Kingdom, and Switzerland the most frequently acknowledged jurisdictions. But coordination between federal and state authorities within the U.S. is also significant. The SEC acknowledged entities from 49 U.S. states, as well as Puerto Rico, the District of Columbia, NASAA (the member organization for state securities regulators), and local police departments or other local authorities.
  • Increasing coordination. The results are also consistent with an increasingly interwoven system. Over time, for instance, the SEC has thanked an increasing number of entities per release.

The enforcement networks study provides missing empirical underpinnings for theorizing agency coordination. It provides new information and a tool for quantifying interactions that cannot be detected through a study of formal structures and agreements alone. Although the approach has limitations, tracking the SEC’s acknowledgments identifies agency enforcement interactions that would otherwise be invisible to the public eye and models a tool for understanding agency networks more generally.

Verity Winship is a Professor of Law at University of Illinois College of Law. Her article, Enforcement Networks, is forthcoming in the Yale Journal on Regulation (2020) and is available at https://ssrn.com/abstract=3483237. A version of this post also appears on the Oxford Business Law Blog.

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