The paper examines the penalties imposed on 585 firms targeted by SEC enforcement actions for financial misrepresentation from 1978 to 2002, tracking through November 15, 2005. The average legal penalty per firm is $23.5 million, while the market-driven penalty is significantly higher, with the reputational penalty—defined as the expected loss in future cash flows due to lower sales and higher contracting and financing costs—exceeding the legal penalty by over 7.5 times. The additional loss of $3.08 per dollar of market value inflation is attributed to $0.36 in legal penalties and $2.71 in lost reputation. In surviving firms, the reputation loss is even greater at $3.83. The study finds that the reputation loss is positively related to the firm's reliance on implicit contracts, challenging the belief that financial misrepresentation is lightly punished. The findings have implications for business and public policy, suggesting that the cost of cooking the books is substantial and should be considered in business decisions and regulatory policies.The paper examines the penalties imposed on 585 firms targeted by SEC enforcement actions for financial misrepresentation from 1978 to 2002, tracking through November 15, 2005. The average legal penalty per firm is $23.5 million, while the market-driven penalty is significantly higher, with the reputational penalty—defined as the expected loss in future cash flows due to lower sales and higher contracting and financing costs—exceeding the legal penalty by over 7.5 times. The additional loss of $3.08 per dollar of market value inflation is attributed to $0.36 in legal penalties and $2.71 in lost reputation. In surviving firms, the reputation loss is even greater at $3.83. The study finds that the reputation loss is positively related to the firm's reliance on implicit contracts, challenging the belief that financial misrepresentation is lightly punished. The findings have implications for business and public policy, suggesting that the cost of cooking the books is substantial and should be considered in business decisions and regulatory policies.