Yesterday, I wrote about Professor Rebecca File’s article analyzing the merits of cooperation. Although she concluded that self-initiated investigations increased the risk of an SEC sanction, she also found that penalties are lower when an issuer undertakes its own investigation.

I noted that her study doesn’t offer a clear-cut answer to whether it is better for a company to auto-critique or simply take its chances on getting caught. For the sake of discussion only, let’s consider the following example.