The Los Angeles Times recently published this story about an Idaho man who shot and killed a grizzly bear on his property where his children were playing. Since the grizzly bear is a threatened species, the U.S. Attorney filed an information charging the man with a violation of the Endangered Species Act of 1975. The shooter faced a sentence of up to one year in prison and a maximum fine of $50,000. Most stories have focused on the ensuing community backlash. Today, I want to focus on the fact that the defendant reported the shooting to authorities. By charging the man, the U.S. Attorney was unintentionally sending the message that if you shoot a grizzly bear, it’s better to bury it than report it.

The same principle seems to be at work in the case of the Securities and Exchange Commission. As I previously reported in this post, one recent study by Assistant Professor Rebecca Files at the University of Texas at Dallas found that company-initiated internal investigations “significantly increase the likelihood of an SEC enforcement action.” In fact, she found that the risk of an SEC enforcement action was more than doubled. However, she also found that self-investigation “decrease firm-level penalties associated with a sanction.” As I pointed out in “The Calculus of Cooperation“, the SEC’s reward for cooperation must be substantial in order to outweigh the significant costs of an internal investigation and the increased risk of enforcement.