April 10, 2012
“No Personal Misconduct” Clawbacks: SEC Sues to Recover Bonuses and Stock Profits Again
– Broc Romanek, CompensationStandards.com
As noted in this press release, in a Sarbanes-Oxley Section 304 clawback action, the SEC sued both the former CEO and CFO of ArthroCare last week to recover bonus compensation and stock sale profits they received during an accounting fraud at the company. The two former officers had not been personally charged in connection with fraudulent financial statements; two other former officers were charged for that last year. This jibes with the District Court of Arizona holding in SEC v. Jenkins – that disgorgement of compensation and profit under Section 304 does not require personal misconduct.
By my loose count, the SEC has used Section 304 at least seven or eight times since its birth in 2002 – see the list of links to SEC clawback actions in our “Clawbacks” Practice Area.
By the way, check out this recent Bloomberg piece: “Morgan Stanley Expands Reasons to Claw Back Executive Pay.”