Tag Archives: Shivaram Rajgopal

Do Heads Roll? An Empirical Analysis of CEO Turnover and Pay When the Corporation is Federally Prosecuted

by Brandon L. Garrett, Nan Li, and Shivaram Rajgopal

A company facing charges will present a “Chicken Little routine” describing the dire consequences of a prosecution for the company, then-U.S. Attorney for the Southern District of New York Preet Bharara famously explained.  Yet typically, after settling the criminal case, “the sky does not fall.”  Instead, Bharara maintained, all too often “the sky brightens,” the firm is seen as having put its problems behind it, and “the CEO even gets a raise.” Other commentators have been skeptical that prosecutions of a company alter behavior of high-level officers such as CEOs. To be sure, sometimes the CEO appears to be affected by a possible prosecution of the company.  The CEO of Wells Fargo recently stepped down before any criminal prosecution was initiated, after civil enforcement and high-profile Congressional hearings brought public attention to bear on unlawful sales tactics the bank used. Perhaps the  culture of not taking responsibility at the top is changing.  Or perhaps cases like that of the Wells Fargo CEO are salient examples only because it is so rare that a CEO is made accountable, in some measure, for corporate crimes. Continue reading →

The SEC’s Enforcement Record against Auditors

by Simi Kedia, Urooj Khan, and Shivaram Rajgopal

Given the high incidence of financial misrepresentation over the past two decades, there is continued interest in understanding the contribution of different gatekeepers in deterring and detecting financial misrepresentation. There is little agreement, however, on the role and responsibility of these gatekeepers, especially that of the auditor.  On the one hand, the audit industry asserts that it is not possible for the auditor to detect intentional fraud by company executives.  On the other hand, is the view exemplified by Steven M. Cutler, former Director of the SEC’s Division of Enforcement, following the collapse of Enron: “While I believe the causes of this phenomenon [seemingly unprecedented corporate fraud] are multiple, a significant contributing factor was the laxity of the so-called gatekeepers — the accountants, lawyers, research analysts, board members and others controlling access to our capital markets. Perhaps foremost among these is the auditor.” Continue reading →