The Advisors' Blog

PLI’s “SEC Speaks” program continued yesterday, with an emphasis on enforcement. As I noted yesterday, all Staff remarks were made subject to the standard disclaimer that they are made in the person’s official capacity and don’t represent the views of the Commission, the Commissioners or other Staff members.

In yesterday’s program, Stacy Bogert, Associate Director of the Division of Enforcement, noted that Sarbanes-Oxley Section 304 clawbacks are a continued issue of focus for the Enforcement Division. The Division has issued several warnings about this – and the DOJ is also interested. If the Staff is talking about it at a conference, we should pay attention.

Stacy noted that the enforcement approach is guided by the policy underlying the statute: to incentivize CEOs and CFOs to implement robust internal controls designed to detect and prevent misconduct in financial reporting and encourage an appropriate tone at the top. So, you can expect the Commission to seek recovery in these cases beyond the “fraud delta” (the amount of executive enrichment that resulted from the misconduct at issue). It’s likely that they’ll pursue reimbursement to the company of the full amount of all forms of compensation – including profits that the executives received upon the sale of equity. Stacy also gave a reminder of the view that the clawback can apply regardless of whether the CEO or CFO personally engaged in the misconduct that caused the restatement.

These remarks send a “deterrence” signal that may cause many companies to take (yet another) look at their controls & trainings….

– Liz Dunshee