Employers and employees take note: Another district court ruling sheds light on what is and isn’t protected whistleblowing activity under Section 806 of Sarbanes-Oxley.

The U.S. District Court for the Western District of Washington has dismissed whistleblower claims brought by two former compliance auditors of the Boeing Company who were fired in 2007 after leaking information to a reporter.

“Congress has made clear that while SOX was intended to protect whistleblowers, only certain types of whistleblowing would be afforded protection. Leaking documents to the media is not one of them,” Judge John Coughenour wrote in the Feb. 9 opinion (hat tap to lawyers at Katten Muchin Rosenman, who wrote about the case in this alert and provided CW a copy of the decision).

The plaintiffs, Nicholas Tides and Matthew Neumann, former Boeing audit IT SOX auditors, made several complaints during their employment to supervisors about perceived auditing deficiencies. Concluding that Boeing’s auditing culture was “unethical and that the work environment was hostile to those who sought change,” Tides and Neumann eventually contacted a reporter from the Seattle Post-Intelligencer and provided her with information and documents about the deficiencies. They were fired soon after.

SOX Section 806 protects employees against retaliation from employers when the employee provides information or assistance to “(A) a Federal regulatory or law enforcement agency; (B) any Member of Congress or any committee of Congress; or (C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct).”

The Court concluded that SOX doesn’t prohibit termination for disclosures to the media. Whether or not the men engaged in any activity protected by SOX, Boeing was entitled to terminate them for leaking confidential documents to the media, the court ruled.

“Boeing has shown by clear and convincing evidence, that Tides and Neumann would have been dismissed independently of any activity protected under SOX,” Coughenour wrote.

The court disagreed with the plaintiffs’ argument that Boeing’s reliance on the media disclosures to fire them was “merely a pretext,” and that the firings were a response to protected activity such as complaints to their supervisors.

In its decision, the Court considered the case of Van Asdale v International Game Technology—which Compliance Week previously reported on—in which the Ninth Circuit held that a reasonable fact-finder could determine that the asserted grounds for dismissal of the plaintiffs, in-house intellectual-property attorneys for a gaming-machines company, were pretextual. Coughenour said the grounds for dismissal in the case “were not vague and unsupported as they were in Van Asdale.”

Despite the progress made during the last year, both with respect to financial reform and reform of the Securities and Exchange Commission’s enforcement program, there’s more work to do, according to at least one SEC official.

While he praised some of the progress made to date, SEC Commissioner Luis Aguilar, in a Feb. 5 speech, said more change is needed, both by the SEC and lawmakers crafting regulatory reform.

“Whether reform legislation comes soon or not, the SEC must continue its own revitalization,” Aguilar said in remarks at the SEC Speaks conference in Washington, D.C. In particular, he flagged two issues he says would go “a long way to truly empowering our staff and removing barriers from their path.”

First, he repeated his call for the SEC to revisit its 2006 Penalty Statement, which he described as “a misguided approach to how to weigh factors one considers when deciding whether to seek a corporate penalty.”

“Every day these guidelines are in place they adversely impact the cases we are working on,” Aguilar said.

Under that framework, which prioritizes the presence or absence of a direct benefit to the company as a result of the violation and the degree to which the penalty will recompense or further harm the injured shareholders, Aguilar said, “the conduct itself becomes of secondary importance, and the Commission fails to appropriately focus on deterrence.”

He also called for the establishment of a uniform audit trail for securities trading to provide the staff quicker access to information regarding trades. Currently, the staff relies on information from the Electronic Blue Sheet system and information from the self-regulatory organizations, which he described as “an outdated, patchwork approach.”

Aguilar advocated replacing the current system with a searchable repository of trading data that would provide the staff with a “near real-time view of market activity.” He said such a system should be scalable to allow for the inclusion of new products and practices in securities markets, and ideally the derivatives markets.

As previously reported, SEC Commissioner Mary Schapiro noted in a speech at the same event that the commission will consider staff recommendations in the spring to have the SROs develop and implement a consolidated audit trail that captures customer and order event information across markets to help improve market surveillance.

Meanwhile, Aguilar noted that promised e-proxy changes and investor education efforts are coming. He said the SEC soon will establish educational efforts to help investors “understand e-Proxy and their rights” and amend its rules so that the process “is less confusing to investors.”

Under the current rule, companies can post their proxy materials online and send shareholders a notice that they’re available without sending a full set of paper materials unless requested. However, data showed that participation by retail investors plummeted at some companies that used the so-called “notice only” model, sparking criticism by some, including Aguilar, who urged the SEC to either fix or scrap e-proxy.

Aguilar said he’ll be “watching to see if the amendments result in real improvement.”

He also reiterated his call for the SEC to be self-funded. While an early draft of the Senate financial regulation reform bill provided for self-funding, it’s unclear whether that provision will make it into any final legislation. As recently reported, the President’s recent budget request of $1.258 billion for fiscal 2011 would increase the Commission’s coffers by roughly $139 million, or 12 percent over its fiscal 2010 funding level, and would enable the agency to add hundreds of staff positions.

In order for reforms to be sustainable, Aguilar said existing rules must be “implemented fully and enforced.” For example, pointing to the recently adopted Proxy Disclosure Enhancement rule, which requires greater disclosure about board member qualifications, Aguilar said the usefulness of that disclosure to investors will depend on how well the rule requirements are implemented.

“To that end, I commend those who will work to meet not only the letter of the law, but the spirit as well,” he said.

His remarks were part of a broader speech lamenting the lack of progress on financial regulatory reform. Despite the “intense focus” on financial reform over the last year, Aguilar said “very little has changed.”

“There have been many speeches given and many preliminary steps taken toward regulatory reform, but for all the activity, reform itself has yet to be achieved,” he said. For example, he said over-the-counter derivatives, hedge funds, and municipal securities markets “still lack appropriate regulation, and our inspection and enforcement efforts in these areas continue to be severely undermined.”

Aguilar also chastised the use of the reform process by some as an “opportunity to weaken strong investor-focused laws arising from lessons learned in prior crises.” In particular, he has criticized the Wall Street Reform and Consumer Protection Act passed by the House in December because it would exempt non-accelerated filers—which he says account for 50 percent of all U.S. public companies—from having an outside audit of their internal controls as required under Section 404(b) of Sarbanes-Oxley. The Senate draft bill was silent on that issue.

Meanwhile, he lauded two initiatives he advocated last year: the creation of the Investor Advisory Committee and the streamlining of the formal order process, which delegated the power to issue a subpoena to senior staff. Aguilar said the change has resulted in “a huge improvement in the speed and efficiency” by which the enforcement staff can conduct an investigation.

Congressional efforts to chart the future of U.S. financial services regulation continue to forge ahead with the passage by the House of Representatives of a mammoth regulatory reform bill that combines several previous proposals into a massive 1,279 page tome.

The House on Dec. 11 voted 223-202 to approve the Wall Street Reform and Consumer Protection Act, H.R. 4173, a wide-ranging bill to revamp the financial services regulatory landscape in response to the economic crisis. The legislation covers dozens of issues, ranging from consumer protection and federal authority to dismantle financial firms that become “too big to fail” to derivatives oversight. The Act includes several reforms that will impact corporate governance practices at public companies and some that will boost the SEC’s regulatory authority.

If approved, the legislation would mark the biggest revamp of U.S. financial rules since the 1930s. However, it’s far from a done deal. The Senate is still working on its own reform bill, and even when that’s complete, the two chambers would still have to reconcile any remaining differences between the two, which means final legislation may be months away and could look vastly different.

The House legislation encompasses provisions from various reform bills considered by House lawmakers in recent months, including the Financial Stability Improvement Act, Investor Protection Act, the Corporate & Financial Institutions Compensation Fairness Act, the Over-the-Counter Derivatives Markets Act, the Consumer Financial Protection Agency Act, the Private Fund Investment Advisers Registration Act, and the Accountability and Transparency in Rating Agencies Act, and the Federal Insurance Office Act.

Among other things, the House bill maintains an exemption for companies with less than $75 million in public float (non-accelerated filers) from the auditor attestation provision under Section 404(b) of Sarbanes-Oxley.

Currently, those companies have been exempted from the provision by the Securities and Exchange Commission, but are slated under SEC rules to begin complying with 404(b) for fiscal years ending on or after June 15, 2010. When it announced that extension in October, the SEC said it would be the last one.

The exemption, offered in an amendment by Reps. John Adler and Scott Garrett, was approved by the House Financial Services Committee in November against the wishes of committee Chairman Barney Frank. House lawmakers voted 271-153 to defeat an attempt to remove the provision from the bill.

The SEC had no comment on the bill beyond a Dec. 11 statement by Chairman Mary Schapiro, which said, “I applaud the House for taking this historic step to bolster investor protections and fill gaps in our financial regulatory framework. I look forward to continuing to work with Congress on this very significant legislation.”

The Adler-Garrett amendment also asks the SEC and Government Accountability Office to conduct a study to determine how the SEC can reduce the burden of complying with Section 404(b) for companies whose market capitalization is between $75 and $250 million.

The bill approved by the House also provides for an annual shareholder advisory vote on executive pay and golden parachutes for top executives and affirms the SEC’s authority to prescribe rules to allow shareholder access to corporate proxies to nominate director candidates.

Among other things, it would create a controversial new Consumer Financial Protection Agency that would police consumer credit products like mortgages and credit cards, and an inter-agency Financial Stability Council to identify and regulate systemically risky financial firms that should be subject to heightened oversight, standards, and regulation.

The Act would also require financial firms with at least $1 billion in assets to disclose their incentive-based compensation structures to federal regulators, who will be authorized to ban any inappropriate or risky compensation practices that pose a threat to the financial system or the broader economy. It would also create a whistleblower bounty program with incentives to identify wrongdoing in the securities markets and reward individuals whose tips lead to successful enforcement actions. The bill also calls for an independent study of the entire securities industry to identify reforms to improve investor protection.

The House Financial Services Committee has posted a summary and highlights of the bill. Compliance Week will provide readers with detailed coverage in an upcoming edition.

For the second consecutive year, the number of Securities and Exchange Commission settlements declined in fiscal 2009, representing the lowest number of settling defendants since the Sarbanes-Oxley Act was implemented in 2002.

The SEC also saw fewer settlements for the third quarter, according to the latest data tracked by NERA Economic Consulting. In the third quarter, 181 defendants settled with the SEC, compared to 160 in the previous quarter and 216 in the third quarter of 2008, according NERA’s SEC Settlements Trends report.

Six settlements during the quarter passed the $10 million mark: A $50 million settlement with General Electric for alleged financial misstatements in 2002 and 2003 topped the list, followed by the $29.8 million summary judgment award against James Duncan for his role in running an affinity fraud, and an $18.3 million settlement with AGCO Corp. for an alleged violation of the Foreign Corrupt Practices Act.

For the entire 2009 fiscal year, 626 defendants settled with the SEC, compared to 673 in 2008, marking the second consecutive year of decline and the lowest annual number of settling defendants since the Sarbanes-Oxley Act.

For the full fiscal year, 22 settlements hit or surpassed the $10 million mark, including six settlements of $50 million or more.

The report notes however, that, because of the time that it takes for an investigation to become an enforcement action and settlement, the full impact of SEC reforms implemented this year to strengthen enforcement “is likely yet to be seen.” Those measures include ending a penalty pilot program that required the SEC staff to obtain pre-approved settlement ranges prior to negotiating with companies and streamlining the process for obtaining formal orders of investigation.

The report shows that the majority of both company settlements (58.6 percent) and individual settlements (58.9 percent) in 2009 included a monetary payment.

Among companies with settlements that included a payment, the average settlement was $10.7 million, compared to $4.7 million in 2008, while the median company settlement amount remained flat, at $1 million.

NERA notes that the increase in the 2009 average was driven by three settlements of over $100 million: the $350 million settlement with Siemens for alleged violations of the FCPA, the $200 million settlement with UBS for allegedly facilitating customer tax evasion, and the $177 million settlement with Halliburton and KBR for alleged FCPA violations. If those settlements are removed, the 2009 average company settlement amount falls to $4.4 million.

Meanwhile, the average individual settlement was $1 million in 2009, compared to $1.2 million in the prior year. The median settlement for individuals was $0.1 million, as it has been in every year since SOX.

NERA notes that public company misstatements are among the most frequent allegations in SEC enforcement actions, accounting for 1,013, or 19 percent of the post-SOX settlements it tracked.

According to the report, individuals have historically been more likely to be targeted in SEC misstatement cases than the companies themselves.

In 353 cases relating to the alleged misstatements of public companies from the passage of SOX to the end of fiscal 2009, the SEC settled with the company only in 62 cases, while it settled with individual directors or employees only in 99 cases.

In the remaining 192 cases, the Commission settled with both the company and individuals. In all, 699 individuals have settled in public company misstatement cases since SOX, according to the report.

Companies, meanwhile, have picked up the majority of the misstatement settlement tab. Post-SOX, NERA found that company settlements in the cases total $3.7 billion, or nearly 87 percent, compared to $0.6 billion for individuals.

Still, the top individual settlement, $81 million settlement in 2007 with former HealthSouth CEO Richard Scrushy would rank ninth on the list of company misstatement settlements.

Mirroring the trend in overall settlements, the number of settling defendants in misstatement cases fell to 121 in 2009, from 131 last year. Only 2006 saw fewer settling defendants in public company misstatement cases.

The median company settlement value in misstatement cases also declined for the third straight year, to $8 million, the lowest in any fiscal year since 2003.

The report notes that the $33 million proposed settlement with Bank of America would’ve been the second-largest settlement in the quarter. In that case, the SEC accused BofA of inadequate disclosures of provisions for bonus pay to Merrill Lynch employees in proxy documents sent to shareholders of both firms before a vote on the Merrill acquisition. Judge Jed Rakoff rejected the settlement because it fined the company, rather than the culpable individuals, and ordered the case to proceed. A trial is set for Feb. 1, 2010.

According to the report’s authors, the SEC’s failure to get approval of the BofA settlement may result in its pursuing claims against individuals with “renewed vigor” in cases involving public companies.

Meanwhile, the SEC reached fewer insider trading settlements in 2009 than in any fiscal year since the passage of SOX. While the number of settling companies in insider trading cases reached a post-SOX high of 10, only 56 individuals settled insider trading cases with the SEC, down from 76 in the prior fiscal year. However, the report notes that, since the end of the fiscal year, the SEC has brought insider trading charges in the Galleon case and sent at least three dozen subpoenas to hedge funds and brokerages.

The full report is available here.

If it clears Congress, an amendment to pending legislation could roll back the auditor attestation requirement of Sarbanes-Oxley for more than 6,000 public companies, according to a Securities and Exchange Commission official.

SEC Commissioner Luis Aguilar, who railed against an amendment to The Investor Protection Act passed by the House Financial Services Committee last week, in a Nov. 6 speech cited staff estimates that over 6,000 public companies may fall under the threshold of $75 million or less in public float—and would therefore be exempt from the requirement for an independent audit under Section 404(b) if the act passes in its current form.

“The companies that would be exempted are not mom-and-pop neighborhood stores,” he said in prepared remarks. “These are publicly traded companies that offer their shares to all types of investors. And just so you know, this repeal has wide-ranging ramifications and would appear to affect the majority of public companies.”

Pointing to the numerous deferrals for non-accelerated filers and the work done by the SEC and the Public Company Accounting Oversight Board to reduce the compliance burden for smaller public companies, Aguilar said repealing that part of SOX now is “to throw away a substantial amount of work done by regulators, companies, and private organizations to make compliance with 404(b) more cost-effective.”

As reported previously, the SEC on Oct. 2 announced what it said was the last delay for smaller companies to comply with 404(b). Those companies are currently slated to comply with the provision for their annual reports for fiscal years ending on or after June 15, 2010.

“We should remember why 404(b) was passed, recognize the significant positive effects it has had for companies that have complied, and appreciate that a lot of careful work has gone into preparing the standards for use by smaller public companies,” he said. “When we do so, it is clear that repealing 404(b) as to the majority of public companies would be a mistake and inconsistent with the objectives of reform that strengthens investor protection.”

Of course, as Aguilar noted, there’s still time for the provision to be stripped out of the bill. “My hope is that the Senate will not include this deregulatory initiative as it develops legislation,” he said.

Aguilar also shared his views on other reform proposals currently being debated, including another provision in the legislation that would transfer oversight of a substantial number of investment advisers from the SEC to the Financial Industry Regulatory Authority Inc.

Noting that investment advisers will “need to be assessed a bill for this additional oversight,” he said, “if advisers have to write a check to someone, as the legislation would require, it makes much more sense for that check to go to the SEC—as the SEC already has the team and expertise in place.”

Oversight of the investment adviser community has been a partnership between state and federal regulators, and injecting an industry organization into the mix “dramatically changes the oversight structure in ways that do not make sense,” particularly given the other provisions in the proposed legislation, he said.

Meanwhile, Aguilar repeated his call for the SEC to become self-funded, which could be done by having the SEC retain the registration and securities transaction fees it collects. Those fees currently go to the Treasury.

In response to common misconceptions about his plan, he clarified that penalty amounts wouldn’t be used as a source of funding, and that as a self-funded agency, the SEC would still be subject to oversight by Congress and other federal entities, such as the Government Accountability Office, its own Inspector General, the Office of Management and Budget, the Office of Personnel Management, and the General Services Administration. The agency would also still be required to publish its strategic plan and to chart its progress against specific performance measures.

The House Financial Services Committee formally approved an amendment this morning to exempt small companies from Section 404(b) of Sarbanes-Oxley.

On a 37-32 vote—that, notably, went against the wishes of powerful committee chairman Rep. Barney Frank—the lawmakers approved an amendment to the Investor Protection Act that would exempt all non-accelerated filers from Section 404(b). The committee then went on to approve the entire Investor Protection Act by a vote of 41-28.

The amendment reportedly represents a compromise between anti-SOX lawmakers, who wanted to exempt a much larger group of filers, and the Obama Administration. But financial reporting executives shouldn’t rejoice yet: The bill must still be approved by the full House and then by the Senate to become law.

Section 404(b) requires companies to get an auditor’s attestation about the effectiveness of their internal controls over financial reporting and is widely considered the biggest compliance burden in the Sarbanes-Oxley Act. Large filers have had to comply with the provision since 2004, but the Securities and Exchange Commission has repeatedly extended the compliance deadline for non-accelerated filers.

The amendment, sponsored by New Jersey Reps. John Adler and Scott Garrett, also directs the SEC and the Comptroller General to conduct a joint study to determine how the SEC could reduce the burden of complying with Section 404(b) for companies with market caps between $75 million and $250 million.

Even if the measure does ultimately become law, non-accelerated filers (and everyone else) will still need to comply with Section 404(a), which requires companies to review and disclose the state of their internal controls. Section 404(a) went into effect for non-accelerated filers one year ago.

The committee’s action follows the SEC’s Oct. 2 announcement of one final delay for non-accelerated filers. Under that delay, the smallest public companies are supposed to begin complying with the provision beginning with their annual reports for fiscal years ending on or after June 15, 2010. The extension was granted at the same time the SEC released its study on SOX compliance costs and benefits.

An SEC spokesman said the Commission had no comment on today’s action by the committee, but referred to a letter sent by chairman Mary Schapiro on Oct. 16 to capital markets Sub-committee Chairman Paul Kanjorski.

That letter noted that, “According to our staff’s recent study of the costs and benefits of Section 404, surveyed investors indicated that Section 404 compliance ‘has significantly impacted their confidence in companies’ financial reports’ … Investors indicated that they have greater confidence when a Section 404 audit is performed.”

“… I believe that the enactment by Congress of Section 404 continues to significantly improve investor confidence in the integrity of companies’ financial reports and reporting,” Schapiro wrote.

Section 404 of the Sarbanes-Oxley Act has been in the legislative whirlwind this week.

Two amendments to delay or even rescind Section 404 for many companies came before the House Financial Services Committee on Wednesday, a surprise move that left investor advocates fulminating to anyone who would listen. One amendment to postpone Section 404(b) until 2011 for non-accelerated filers did pass on a voice vote, and will come before the full committee for a roll-call vote on Nov. 4.

The amendment, offered by Rep. Carolyn Maloney, D-N.Y., would require separate studies by the Government Accountability Office and the Securities and Exchange Commission to evaluate the costs and benefits of complying with Section 404(b) on issuers who aren’t accelerated or large accelerated filers—that is, the non-accelerated filers who have been excused from compliance for years already. Those studies would include recommendations, administrative reforms, and legislative proposals to reduce compliance burdens on those issuers and to determine the success of the SEC’s measures to limit the cost of compliance on smaller issuers.

The Maloney amendment would require separate reports by both agencies to Congress by June 1, 2010. Section 404(b) wouldn’t become effective for non-accelerated filers before the results of the report are delivered, and in no case before June 1, 2011.

A separate amendment, offered by Rep. John Adler, D-N.J., would have gone even further: exempting all companies with less than $700 million in market capitalization from Section 404(b), which would include many filers already complying with it. That idea, however, failed on a voice vote on Wednesday, although it too will come to a roll-call vote next week as a formality.

The moves to provide more SOX relief come on the heels of the SEC’s Oct. 2 announcement that it would delay Section 404(b) for small companies until fiscal years ending on or after June 15, 2010. That delay—which the SEC has firmly said will be the last—came at the same time the SEC published its study on the costs of Section 404 compliance.

Both amendments were slipped into legislative work the Financial Services Committee was doing to mark up the Investor Protection Act, HR 3817. Work on that bill is scheduled to resume Nov. 4.

Investor groups quickly voiced their opposition to the amendments in an Oct. 26 letter to several key members of Congress. Signed by leaders from the Council of Institutional Investors, the Consumer Federation of America, the American Association of Individual Investors, and the CFA Centre for Financial Market Integrity, the letter opposes any effort to further defer or exempt any public companies from the internal control requirements of Section 404, which they say “would do a grave disservice to investors whose trust in the markets is an essential ingredient in any financial recovery.”

“It is our view that the Section 404(b) requirements under SOX provide significant benefits to investors, are valuable regardless of a company’s size and represent an appropriate use of a company’s resources given the importance a strong system of internal controls has in producing reliable financial reporting,” the letter states.

Meanwhile, as Compliance Week previously reported, a separate bill, introduced this month by Rep. Scott Garrett (R-N.J.) dubbed the “Small Business SOX Compliance Relief Act” would permanently exempt non-accelerated filers from the reporting requirements of Section 404(b).

Here we go again. Roughly a week after the Securities and Exchange Commission announced what it vowed its last extension for non-accelerated filers to comply with the auditor attestation requirement under Section 404(b) of Sarbanes-Oxley, Congress has revived efforts to exempt those companies from the provision.

Rep. Scott Garrett (R-N.J.) on Oct. 8 introduced the “Small Business SOX Compliance Relief Act” to permanently exempt non-accelerated filers from the reporting requirements of Section 404(b).

Garrett has previously co-sponsored legislation to exempt and/or delay the provision for smaller companies.

“Although the stated intent of Sarbanes-Oxley was to provide investor confidence in our markets through greater accountability and disclosure, the Act has had the unintended effect of creating undue and often unbearable burdens on small businesses,” Garrett said. “It is diverting valuable resources away from other legitimate business needs; creating massive and tedious documentation requirements; and discouraging the public listing of both international and domestic companies on U.S. markets.”

“Especially now, as our country struggles to emerge from a recession, the last thing American small businesses need is another barrier to economic stabilization,” he continued.

A press release from Garrett announcing the move cites the SEC’s own SOX 404 study released last week. “Although reforms were made in 2007 to relax the guidelines for smaller companies, businesses of all sizes still report excessive compliance costs … In summarizing survey responses from businesses regarding the benefits of Section 404 compliance, the SEC wrote, ‘[A] majority felt that the costs of compliance outweighed the benefits. This was especially true among smaller companies.’”

Good news for non-accelerated filers: The Securities and Exchange Commission has granted them more time to begin providing audited assessments of their internal controls over financial reporting as required under Section 404(b) of the Sarbanes-Oxley Act,

The SEC announced the extension today at the same time it published the findings of its long-awaited study on the cost of complying with the statute’s ICFR requirements.

The announcement means that the smallest public companies will begin complying with the provision in nine months, beginning with their annual reports for fiscal years ending on or after June 15, 2010, instead of for fiscal years ending on or after Dec. 15, 2009. That was the deadline under an earlier extension granted by the SEC so its Office of Economic Analysis could complete the study of whether additional guidance provided to management and auditors in 2007 was effective in reducing the costs of compliance.

“Because the study was published less than three months before the December 15 deadline, the Commission determined that additional time is appropriate and reasonable so that small public companies and their auditors can better plan for the required auditor attestation,” the SEC press release states.

“Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance,” SEC Chairman Mary Schapiro said.

Among the study’s findings: The evidence…indicates that there is an “economically and statistically significant reduction in Section 404 compliance costs following the 2007 reforms,” which is most pronounced among larger companies.

More than half of survey participants reported that the 2007 reforms led to a decrease in compliance costs, consistent with the objectives of the reform and the reported cost reductions. Nearly all respondents indicated that they relied on the Management Guidance and, of those, a majority found it to be useful, according to the report.

Among Section 404(b) companies, the mean total Section 404 compliance cost drops significantly from $2.87 million pre-reform to $2.33 million post-reform-a 19 percent decline in the total compliance cost, according to the report. “The compliance cost is expected to be lower still, with a mean cost of $2.03 million, representing a combined decline of 29 percent. When reporting compliance costs by size category, the mean total compliance cost decreases from $769,000 to $690,000 among filers with public float lower than $75 million, but this difference is not statistically significant.”

Compliance Week will provide readers with full details on the findings in an upcoming edition.

Maynard Jenkins, the former chief executive who made headlines as the subject of a first-of-its kind clawback suit brought by the Securities and Exchange Commission, has come out swinging against the agency’s “vicarious strict liability” interpretation of the statute as raising “serious constitutional issues.”

Jenkins, the former CEO of auto parts retailer CSK Auto Corp., has filed a motion to dismiss the civil action filed against him by the SEC in July.

As previously reported, the Commission is seeking to recoup more than $4 million in bonuses and profits Jenkins received while the company was committing accounting fraud.

The SEC said Jenkins must return the proceeds since he was “captain of the ship and profited during the time that CSK was misleading investors about the company’s financial health.” CSK filed two restatements related to overstated vendor allowances while Jenkins was CEO. Earlier this year, the SEC charged four former CSK executives with securities fraud, and in May, it brought a settled enforcement action against CSK for filing false financial statements for fiscal years 2002 through 2004.

The case made headlines because it’s the first in which the SEC is seeking to recoup compensation under Section 304 of the Sarbanes-Oxley Act without accusing Jenkins himself of any misconduct. Since it was established in 2002, the SEC has brought a handful of actions under Section 304 in the context of executives accused of breaking other securities law while backdating stock options. The statute has been criticized for being too vague and too narrowly drafted.

The SEC is “attempting to impose a Draconian penalty on an admittedly innocent person,” the filing states.

According to the motion, the Commission’s interpretation of the statute in this case “departs starkly” from the SEC’s own repeated interpretation and application of the statute and “stretches section 304 well beyond its boundaries.”

The motion further alleges that, if adopted, the SEC’s new interpretation of section 304 would “transform that statute into a punitive sanction imposed on those wholly innocent of wrongdoing.”

Moreover, the filing contends that the SEC’s complaint fails to allege any causal connection between CSK’s accounting restatements and the bonus payments and stock proceeds the Commission seeks to have forfeited.

In an e-mail response, Jenkins’ lawyer, John Spiegel of the firm Munger, Tolles & Olson, said no date has been set yet for the court to consider the motion.