A lawsuit brought by the Securities and Exchange Commission seeking to claw back pay from a former chief executive the agency isn’t accusing of wrongdoing appears set to move forward.

An Arizona district court judge denied the motion to dismiss filed by Maynard Jenkins, the former chief executive of auto parts retailer CSK Auto Corp., who made headlines last July as the subject of a first-of-its kind clawback suit brought by the Commission.

As previously reported, the SEC is seeking to recoup more than $4 million in bonuses and profits Jenkins received while the company was committing accounting fraud. CSK filed two restatements related to overstated vendor allowances while Jenkins was CEO. The SEC brought a settled enforcement action against CSK in May 2009 for filing false financial statements, and filed criminal and civil actions against other former CSK employees.

The case made headlines as the first in which the SEC wants to recoup compensation under Section 304 of the Sarbanes-Oxley Act without accusing Jenkins himself of any misconduct.

At issue is whether Section 304 requires a CEO to reimburse an issuer even where the CEO committed no personal wrongdoing.

Section 304 requires that, if an issuer restates because of material non-compliance with securities laws, and if that non-compliance was caused by the company’s misconduct, then the CEO or CFO must reimburse the issuer any bonuses and incentive-based and equity-based compensation received during the twelve-month period following the first improper public issuance or filing.

The SEC’s complaint doesn’t allege that Jenkins was aware of or played any role in perpetuating the fraud. However, as CEO, he certified the inaccurate financial statements and the restatements.

In a June 9 order denying the motion to dismiss, District Judge Murray Snow concluded that the SEC’s complaint properly states a claim under the statute.

“The overarching issue is whether the Complaint alleges facts sufficient to raise a plausible claim under Section 304,” Snow wrote. “Because a motion to dismiss turns not on what facts ultimately may be proven, but rather on what the complaint plausibly alleges, the Court need not reach issues that depend on factual disputes. Accordingly, based on traditional rules of statutory interpretation, the Court concludes that the Complaint has alleged facts sufficient to state a claim under Section 304.”

SEC spokesman John Nester said the agency is “pleased with the Court’s ruling.”

Jenkins’ lawyer, John Spiegel of the law firm Munger, Tolles & Olson, did not immediately respond to a request for comment.

So far, most of the actions brought by the agency under Section 304 have been in the context of executives accused of breaking other securities law while backdating stock options. However, last week, former Diebold CEO Walden O’Dell agreed to repay more than $470,000 in cash bonuses, 30,000 shares of stock, and options for 85,000 shares to settle an SEC enforcement action brought under SOX Section 304, even though O’Dell wasn’t accused of fraud. The SEC is suing three of Diebold’s former senior executives, alleging they used fraudulent accounting practices to inflate earnings. Diebold agreed to pay $25 million to settle fraud charges without admitting or denying the SEC’s allegations.

The uptick in Securities and Exchange Commission settlements continued during the first half of the year-much of it due to settlements with individuals.

According to data tracked by NERA Economic Consulting, the SEC settled with 354 defendants in the first half of 2010, compared with 328 in the second half of 2009 and 290 in the first half of 2009. The tally marks the second consecutive semiannual increase and the third-largest number of settlements in any half-yearly period since 2005, according to the NERA report, SEC Settlements Trends: 1H10 Update.

Notably, the increase over the past two semi-annual periods has been largely driven by settlements with individuals. NERA reports that the number of settlements with individuals increased to 257 in the first half of the year, up from 225 during the second half of 2009. Meanwhile, the number of settlements with companies fell slightly during the same period to 97 from 103.

The first half of 2010 brought two notable settlements, both related to the sub-prime crisis: the $314 million settlement with State Street Bank and Trust—the seventh-largest SEC settlement since the passage of the 2002 Sarbanes-Oxley Act, and the $150 million settlement with Bank of America.

The proportion of company settlements that included a monetary payment increased to 67 percent in the second quarter, up from 42 percent in the first quarter, bringing the company percentage for the first half of 2010 to 53 percent, comparable to the 56 percent average for the entire post-SOX period. Monetary payments were a component in 60 percent of individual settlements in the first half of the year, which NERA says is consistent with the overall post-SOX figure.

Although it represents an increase compared with the second half of 2009, the median company settlement of $0.7 million for the first half of 2010 marks the fourth lowest of any semi-annual period since the passage of SOX.

Meanwhile, for individuals whose settlements included a monetary payment, the median settlement amount of roughly $167,000, represents a post-SOX high.

Notably, the first half saw a surge in insider-trading settlements with individuals. Insider-trading allegations have been an SEC enforcement staple, accounting for 618 (11 percent) of the 5,702 settlements since SOX, according to NERA. The SEC settled 50 insider-trading cases during the first half of 2010—48 of which were against individuals.

The full report is available here.

Gear up for more fighting on SOX 404: An amendment to Senate financial reform bill would exempt companies with less than $150 million in public float from Sarbanes-Oxley’s outside auditor attestation requirement, which would include some companies already complying with the provision.

Sen. Kay Bailey Hutchison (R-Texas) and Sen. Mary Landrieu (D-La.), chair of the Committee on Small Business and Entrepreneurship, have filed an amendment to S. 3217, the “Restoring American Financial Stability Act of 2010,” that would exempt public companies with less than $150 million in public float from complying with Section 404(b).

The amendment also calls for a study to see how to reduce the compliance burden for companies with public float of $150 million to $700 million, including recommendations about whether the
exemption should be extended to larger issuers.

Exactly when the measure would come to the floor for a vote is uncertain, but Gene Diamond, a spokesman for Senator Hutchison, says it could be next week.

Section 404(b), which is widely considered the 2002 statute’s biggest compliance burden, requires public companies to get an auditor’s attestation about the effectiveness of their internal controls over financial reporting. Under current SEC rules, companies with less than $75 million in public float (non-accelerated filers) are currently exempt from the auditor attestation provision, but are slated to begin complying with 404(b) for fiscal years ending on or after June 15, 2010.

The issue is a lightning rod for controversy. Most business groups and companies support measures to reign in 404(b). However, most investor and consumer groups strongly oppose any exemption from the provision.

Filers with more than $75 million in public float have had to comply with 404(b) since 2004. All public companies already comply with 404(a), the provision that requires management to review and report on the state of their internal controls over financial reporting.

The Senate measure filed by Landrieu and Hutchison is also broader than that included in the House financial reform bill passed last December. The House bill would provide an exemption from 404(b) for companies with less than $75 million in public float and would call for a study to determine how the SEC can reduce the burden of complying with Section 404(b) for companies with market caps between $75 and $250 million.

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A Massachusetts district court has addressed two thorny issues confronting employers defending against whistleblower claims brought under Sarbanes-Oxley: Who’s protected under the statute and whether whistleblowers are entitled to a so-called second bite at the apple.

A March 31 combined ruling by U.S. District Judge Douglas Woodlock addressed motions to dismiss in two separate cases alleging unlawful retaliation against employees of non-public companies in the mutual fund industry who complained of improper business activities by their employers. Judge Woodlock denied motions to dismiss by the defendants, Fidelity Investments and Fidelity Management, which argued that as employees of privately held companies, the plaintiffs aren’t covered by the SOX whistleblower provision.

In both cases, Woodlock held that the plaintiffs, Jackie Hosang Lawson and Jonathan Zang, as employees of investment advisers to mutual funds, are covered by SOX Section 806.

“For the goals of SOX to be met, contractors and sub-contractors, when performing tasks essential to insuring that no fraud is committed against shareholders, must not be permitted to retaliate against whistleblowers,” the decision states. “These concerns are especially strong for mutual funds, which have no employees and implement the funds’ management through contractual arrangements with investment advisers.”

If Section 806 only protected public company employees, Woodlock noted that any reporting of fraud involving a mutual fund’s shareholders would go unprotected “for the very simple reason that no ‘employee’ exists for this particular type of public company.”

Eric Martin, an attorney with McGuireWoods, says the holding is likely to encourage an increase in SOX filings by employees who are not obviously within the statute.

“Employees of private employers may be encouraged to bring claims for perceived retaliation after they complain about something that could impact the balance sheet of their employer’s customers,” he says.

Notably, however, Martin points out that the Court said its interpretation only made sense if it modified the enumerated types of protected activity (e.g., bank fraud, wire fraud, etc.) by the phrase “relating to shareholder fraud.”

Courts have previously split on whether that language modifies all of the enumerated activities, or only the final activity, “any other violation of federal law.”

The court also held that, while Zang had tried his case before an Administrative Law Judge and received an adverse ruling, he met the statute’s requirements for seeking de novo review, allowing him to remove his case to federal court.

According to the decision, Zang obtained the ALJ’s decision on March 27, 2008, appealed the decision to the Administrative Review Board on April 9, and notified the DoL on April 16 that he planned to file suit in federal court, which he did on May 6.

Because the matter was on appeal to the ARB and 30 days hadn’t yet passed, the ALJ’s decision wasn’t a “final decision” when Zang filed his complaint in federal district court.

Woodlock’s decision cited the Fourth Circuit’s 2009 ruling in Stone v. Instrumentation Laboratory Co., the only other opinion to address that issue. The Fourth Circuit in that case ruled similarly that the plaintiff in that case had the right to sue his employer in district court because the Labor Department hadn’t issued a final decision within 180 days of his filing an administrative complaint.

Martin describes the ruling as “extremely troubling,” since although the plain language of the statute appears to allow it, “it seems contrary to the intent of a quick and less-costly resolution of SOX whistleblower claims.”

It essentially gives plaintiffs—but not defendants—two bites at the apple, since whistleblowers who don’t like the decision they receive from the ALJ can remove their complaint to federal court and obtain a trial de novo, he says. Under the statute, employers don’t have the right to remove cases to the District Court.

“I’d expect to see more employees who lose in front of an ALJ remove their complaint to federal court and try again,” with the effect of forcing employers to defend the claims twice, Martin tells Compliance Week.

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

A key Senate committee has passed sweeping financial reform legislation, advancing the Dodd regulatory bill for consideration by the full Senate, moving lawmakers a small step forward in their effort to overhaul the U.S. regulatory system.

The Senate Banking Committee on Monday evening voted 13-10 along party lines to approve the controversial reform bill put forth by committee Chairman Chris Dodd (D-Conn.) without any Republican support.

Rather than offering a slew of amendments during the March 22 mark up, the committee’s Republican members decided to hold their amendments until the massive reform bill, “Restoring American Financial Stability,” which spans more than 1,300 pages, comes up for a vote before the full Senate.

In remarks during the brief markup, Ranking Committee member Richard Shelby (R- Ala.) said, “It is not our intention to turn this markup into a long march, offering hundreds of amendments that will inevitably be defeated. We don’t think that would be constructive or productive.”

Shelby ticked off a long list of issues Republicans want to see addressed in any final bill. Among them are the proposed Consumer Financial Protection Agency, new rules to regulate over-the-counter derivatives, corporate governance provisions he said, “would impose costs on shareholders and empower special interests,” and provisions related to credit rating agencies, securitization, and Securities and Exchange Commission funding, which he said, as drafted, “would not solve the problems they attempt to address.”

Among other items, Corporate America is waiting to see whether the Senate will deliver an exemption for non-accelerated filers from compliance with Section 404(b) of the Sarbanes-Oxley Act, the portion that requires companies to have an outside auditor sign off on their internal controls over financial reporting.

As previously noted, South Carolina Republican Jim DeMint is expected to introduce an amendment that would exempt small public companies from 404(b).

A provision that would exempt public companies with market capitalizations below $75 million from Section 404(b) made it into the final House reform bill passed in December. Unless the Senate acts (or the SEC, which seems unlikely) those companies are slated to begin complying with the measure for fiscal years ending on or after June 15, 2010.

Meanwhile, the bill’s final fate remains unclear. Lawmakers are expected to file hundreds of amendments to the current draft, so any final version could look vastly different from the one unveiled March 15. The legislation would need 60 votes to clear the Senate, and even then, both chambers would still need to reconcile their differences and approve a final bill to be signed by the President.

Compliance Week will continue to provide readers with ongoing coverage of the financial reform legislation as it progresses.

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.