The truth of disclosures by public companies is policed by both private plaintiffs and the Securities and Exchange Commission (SEC). The courts and many commentators have viewed the SEC as a more responsible enforcer than private litigants. Entrepreneurial enforcers with a profit motive have an incentive to advance questionable legal theories to expand the reach of Rule 10b-5, the primary federal prohibition of securities fraud. In contrast, the conventional view is that a public enforcer will bring straightforward cases against public companies. This Article argues that this perception is dated, and that the SEC has become more entrepreneurial in its enforcement relating to material misstatements by issuers. The agency now routinely avoids doctrinal limitations on the reach of Rule 10b-5 and brings cases that disagree with established precedent. One reason for this shift is the SEC’s increasing emphasis on penalty collection. Another is that the SEC is advancing a more ambitious regulatory agenda. An entrepreneurial approach has increased the impact of SEC enforcement and addressed criticism that the agency is too passive. However, to maintain the legitimacy of its enforcement program, the SEC should take steps to increase the transparency of its enforcement decisions.
