The Impact of SEC Case Backlog on Investigations

In recent years, the number of enforcement actions by the Securities and Exchange Commission (SEC) has declined significantly, which has led to questions about the SEC’s effectiveness. While several potential explanations exist for this decline, SEC officials have often pointed to being too busy to effectively investigate and prosecute all potential misconduct (Peikin 2019).

In a new study, we examine the impact of busyness on the SEC Division of Enforcement’s formal investigation process. In particular, we focus on four broad lines of inquiry: (1) the effect of open-case backlog on the overall likelihood of SEC investigations; (2) the effect of backlog on the SEC’s priorities for case selection and resource allocation; (3) the effect of backlog on a comprehensive set of outcomes for firms that are investigated by the SEC following a restatement; and (4) a comparison of future financial reporting and performance outcomes between firms that are not investigated in periods of high backlog and firms that are investigated in periods of low backlog.

Historically, observing the consequences of SEC workload has been challenging because the SEC has long elected to conduct investigations confidentially to protect evidence and reputations. Since an investigated firm is also under no mandate to disclose the investigation, identifying workload stemming from case backlog has been nearly impossible. We overcome this obstacle by using a newly available dataset from Blackburne et al. (2021) that identifies the subjects of formal SEC investigations, along with the investigations’ open and close dates. This dataset allows us to use case open and close dates to measure the stock of outstanding investigations being pursued by an SEC office at a given time – what we refer to as case backlog.

The Effect of Open Case Backlog on the Overall Likelihood of SEC Investigations

We begin by examining the impact of regional office case backlog on the likelihood of investigation initiation. Following prior research, we use financial restatements as trigger events because they are likely to draw the SEC’s attention. We find that a high backlog reduces the SEC’s likelihood of initiating an investigation into a misreporting firm after a restatement. Further, we find that a one-standard deviation increase in backlog from the mean reduces the relative likelihood of the SEC investigating a restatement by 10.4 percent.

How Backlog Affects the SEC’s Priorities for Case Selection and Resource Allocation

Next, we examine how backlog affects the SEC’s priorities for case selection and resource allocation. In particular, we investigate areas that the SEC has publicly stated are high priorities: revenue recognition, insider trading, and large shareholder losses or other investor harm. Consistent with the SEC prioritizing certain cases regardless of busyness, our results show no evidence that backlog constrains the opening of an investigation into a restating firm when the restatement involves a revenue recognition issue or when top executives have engaged in a high degree of insider selling during the misreported periods. In contrast, we find that backlog impedes the SEC from investigating financial restatements that are associated with the largest loss of shareholder value based on stock returns. Further analysis reveals that investigations into such cases take longer and so are especially costly for the SEC to conduct during periods of high backlog. Collectively, these findings suggest that busyness potentially inhibits the SEC from minimizing and deterring activities that lead to the most significant investor harm. We also examine whether a factor discussed in prior research – political connections – affects the SEC’s case prioritization during periods of high backlog. Interestingly, busy SEC offices are less likely to investigate restating firms that have recently lobbied the U.S. government, a result suggesting that agency busyness may complement the utility of political lobbying for misreporting firms and executives.

The Effect of Backlog on Investigation Outcomes

Next, we examine how backlog affects investigation outcomes. We find that higher office backlog is associated with longer investigations and a lower likelihood of an enforcement action. The lengthening of investigations associated with office busyness appears counter to the SEC’s recently publicly stated goal of conducting accounting-related investigations more quickly (SEC 2019). We find that a one-standard deviation increase in investigating office busyness reduces enforcement likelihood by 19.4 percent. This result is potentially concerning given that past SEC chairpersons have touted the unique deterrent value of enforcement actions.

For the subset of investigated firms ultimately subject to enforcement actions, we find that higher office backlog during the investigation is associated with lower penalty amounts and fewer required governance changes. These results suggest that SEC busyness constrains the SEC’s ability to punish and reform misreporting firms. We also find that, during periods of high office-case backlog, the SEC and other regulatory agencies increase cooperation, which the SEC has identified as a priority. Because busyness reduces overall monetary penalties and enforcement actions, however, it is unclear whether this incremental increase in cooperation during periods of higher backlog offsets the reduced SEC enforcement.

Last, we examine whether higher case backlog at the SEC influences private enforcement. It is plausible that the SEC may reduce its investigative efforts and instead rely on private enforcement to fill the gaps created by its capacity constraints. To examine this possibility, we perform mediation analysis to understand the strategic interaction between public and private enforcement in the context of the SEC’s busyness. We find that SEC office-case backlog reduces the likelihood of an SEC enforcement action, which indirectly reduces the likelihood of a class-action lawsuit being filed.

Analysis of Firms Not Investigated Plausibly Due to Backlog

Finally, we examine a subsample of material restatements that the SEC investigates during periods of low backlog and restatements that the SEC does not investigate during periods of high backlog. We provide modest evidence that the uninvestigated firms during the high backlog periods have lower financial reporting quality (i.e., accounting manipulation) and worse performance in subsequent periods (i.e., lower stock returns). Further, using a difference-in-differences research design, we find that investors rely less on the uninvestigated firms’ earnings releases than on the investigated firms’ earnings releases. Collectively, these findings suggest that backlog hinders the SEC from curtailing possible continued misreporting and, thus, erodes the usefulness of financial reporting to investors.


Using a set of all investigations the SEC has closed since 2000, we provide evidence that investigation case backlog appears to hamper the SEC’s investigation process. It appears that SEC offices are unable to quickly expand their investigative staff in response to increased backlog and are, therefore, less likely to pursue an investigation of a particular firm because existing resources are closer to their peak capacity.

We believe the evidence we present in this study has important practical implications for those making regulatory staffing decisions and budgetary appropriations. In particular, the SEC may want to consider flexible staffing arrangements that would increase its ability to shift staff across offices when there is a large backlog of investigations at a particular office. Additionally, the SEC may want to understand better why cases associated with greater shareholder losses are not being investigated when case backlog is greater. Finally, those in charge of budgets may want to consider the value of having excess enforcement staff during periods of high case backlog.


Peikin, S., 2019. Keynote Speech at Southern Securities Conference 2019. Speech dated September 6, 2019.

Blackburne, T., Kepler J., Quinn, P. and Taylor, D. 2021. Undisclosed SEC Investigations. Management Science, 67(6), 3403 – 3418.

U.S. Securities and Exchange Commission (SEC). 2019. Division of Enforcement 2019 Annual Report. Retrieved from:

This post comes to us from professors Samuel Bonsall at Pennsylvania State University’s Smeal College of Business, Eric Holzman at Ohio State University’s Fisher College of Business, and Brian Miller at Indiana University’s Kelley School of Business. It is based on their recent paper, “Wearing Out the Watchdog: The Impact of SEC Case Backlog on the Formal Investigation Process,” available here.

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