Short version? They burn.
Longer version: Karpoff, Lee, and Martin look at over 2000 (2,206 for those who want more precision) cases of SEC or Department of Justice “enforcement actions for financial misrepresentation” from the late 1970s to September 2006. They find that those managers who were responsible did have a price to pay above and beyond the drop in the value of their stock holdings (and options I would add!).
The price varies predictably with severity of crime and strength of governance, BUT overall it is quite clear the managers do pay a personal penalty. It starts with loss of employment--an amazing “93% lose their job by the end of the regulatory enforcement period” with more than fifty percent of those being fired.
But the fun does not stop there! Over a quarter are also charged criminally with about three quarters of those “[having] pled guilty or convicted.” If that is their fate, then on average they guilty party is “sentenced to an average of 4.3 years in jail and 3 years of probation.”
Morale: Contrary to what many people believe those at the top do pay the price for their indiscretions. Which reminds, me, did you see Paris Hilton was released from jail?
Note: While I quote the authors and use the term "cooking the books," I hope this does not confuse the reader with their JFQA paper on cooking books. This current paper (while similar to the other work) is entitled The Consequences to Managers of Financial Misrepresentation Here is a link to a working paper version of the paper since the JFE version is not available online.