Yesterday, the SEC announced the latest in a growing list of "clawback" actions it has filed under Section 304 of the Sarbanes-Oxley Act. Under Section 304:
If an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall reimburse the issuer for--
- any bonus or other incentive-based or equity-based compensation received by that person from the issuer during the 12-month period following the first public issuance or filing with the Commission (whichever first occurs) of the financial document embodying such financial reporting requirement; and
- any profits realized from the sale of securities of the issuer during that 12-month period.
The agency announced that it had reached a settlement with James O'Leary, the former CFO of Beazer Homes USA, to recover O'Leary's $1.4 million in bonus compensation and stock sale profits from the period when Beazer was allegedly committing accounting fraud. The SEC previously reached a settlement in March 2011 with Beazer CEO Ian McCarthy to recover several million dollars in bonus compensation and stock profits that he received while the alleged fraud was ongoing. Notably, neither McCarthy nor O'Leary were personally charged with any misconduct--allegations of misconduct are not required under the statute.
The SEC announced its first clawback settlement in December 2007 against William W. McGuire, M.D., the former CEO of UnitedHealth Group Inc. That case also involved allegations of misconduct against McGuire, however. Similarly, the SEC charged the former CEO and CFO of Microtune, Inc. under Section 304 along with other claims alleging fraudulent conduct.
In July 2009, the SEC brought a Section 304 case against Maynard Jenkins, former CEO of CSK Auto Corporation, and noted that it was the first SEC action under Section 304 against an individual who was not alleged to have otherwise violated the securities laws. Last month, the SEC's enforcement division and Jenkins appeared to reach a settlement "for significantly less money than the agency originally sought," but it was reportedly rejected by the Commission.
Other Section 304 cases include SEC v. O'Dell (June 2010). Walden O'Dell, the former CEO of Diebold, was not alleged to have engaged in any misconduct.