Harvey Pitt and Karen Shapiro present a comprehensive review of the Securities and Exchange Commission's regulatory and enforcement activities during the past decade and discuss the use of ex post enforcement actions as a means of controlling the behavior of market participants. They note several dangers inherent in the use of enforcement actions to regulate behavior, such as the absence of sufficiently precise definitions of the prohibited activities and the lack of procedural safeguards associated with the formal rulemaking process. Because Pitt and Shapiro generally support comprehensive regulation of the financial markets, however, they stop short of raising a more fundamental concern-that the use of enforcement actions to define prohibited conduct short-circuits debate over whether the conduct should be regulated at all.
Paul G. Mahoney,
Securities Regulation By Enforcement: An International Perspective,
Yale J. on Reg.
Available at: https://digitalcommons.law.yale.edu/yjreg/vol7/iss1/7