You’ve Been Served: The Effectiveness of SEC Subpoena Power and Its Implications for Investigated Firms

Abstract

The U.S. Securities and Exchange Commission (SEC) possesses subpoena authority that enables it to compel firms to provide private information during investigations. Despite the tremendous burden placed on companies to comply with the compulsory requests associated with subpoenas, the effectiveness and consequences of this tool remain unclear. Using novel data obtained through Freedom of Information Act requests, we present the first large-scale empirical analysis of the determinants and outcomes of SEC subpoena use. We find that subpoenas are more likely to be issued to opaque firms and when investigation targets are uncooperative. Although subpoenas are associated with an increased likelihood of enforcement, they also lengthen investigations, regardless of the outcome. Exploiting a 2009 policy reform that delegated subpoena authority to lower-level staff, we show that expanded access to this power amplified both enforcement rates and investigation duration. Finally, we document that firms are thirteen times more likely to dismiss their CEO in the week following subpoena issuance.