Sox and backdating
In Rationalizing the Dodd-Frank Clawback, recently made publicly available on SSRN, I analyze and critique the SEC’s proposed Dodd-Frank clawback.
I explain that while the proposed clawback would reduce executives’ incentives to misreport, it is too broad.
The SEC alleges that his company engaged in a massive accounting fraud, requiring a restatement, and thus Jenkins must payback these funds under Section 304 of SOX, the so-called “claw back” provision.
Section 304, rarely used in the past by the SEC and never before against a CEO who was not personally accused of fraud, requires repayment to his company of certain bonuses and stock sale profits from a CEO or CFO whose company must make a restatement based on “misconduct.” The SEC pointedly did not accuse Mr.
There should be consequences to top managers who give these sweeping certifications to investors only later to have to issue restatements, often disclosing material weaknesses in internal controls or worse, which have the effect of making the certifications worthless.
Since several courts have held there is no private remedy under Section 304, the SEC alone bears the responsibility to enforce this provision of SOX and give teeth to the certification requirements.
As I point out in the article, the legislative history, while sparse, supports a broad interpretation of Section 304 in which personal misconduct by the CEO or CFO, as opposed to management in general, is not required.
Section 954 of the 2010 Dodd-Frank Act will, when implemented, require issuers with securities listed on a national exchange to create and enforce an excess-pay clawback. Hall is a partner and head of the corporate governance practice at Davis Polk & Wardwell LLP. Related research from the Program on Corporate Governance includes Excess-Pay Clawbacks by Jesse Fried and Nitzan Shilon (discussed on the Forum here).304 against a CFO not personally accused of fraud, calling it a “regrettable policy choice” and an “unfortunate contribution to the overheated atmosphere surrounding executive compensation.” Other commentators have also questioned the lawsuit, suggesting that it will have unfortunate consequences if successful.They too feel the statute is too ambiguous regarding whose “misconduct” is required to hit the CEO or CFO with claw back actions.It later became clear that CSC would not be able to meet its commitments under the amended contract either. Hurson of the Hurson Law Firm LLP, and relates to a recent client memorandum by Mr.
Hurson, which can be found here.) In a recent forum post, John F. Carlin of Wachtell Lipton are critical of the SEC’s recent filing of a case against former CEO Maynard Jenkins of CSK Auto Corp., seeking payback of over million in bonuses and stock sale proceeds.The SEC also charged former CSC finance executives for ignoring accounting standards to increase reported profits. This case marks the second time the SEC has obtained this type of relief without alleging that the CEO in question personally engaged in any wrongdoing.