SEC files SOX 304 clawback case
By Cydney Posner
Today, the SEC filed its first action seeking reimbursement under the "clawback" provisions of SOX 304 from an individual who is not otherwise alleged to have violated the securities laws.
SOX 304 requires corporate executives to forfeit their stock sale profits and bonuses earned when there has been a financial restatement resulting from misconduct. SOX was enacted in 2002. The real first settlement in connection with SOX 304 was in 2007, when the SEC settled an option backdating case that led the Chairman of the Board of UnitedHealth Group Inc. to return to the company approximately $600 million in cash and options. The instant case, against the former CEO of CSK Auto Corporation, seeks reimbursement of more than $4 million that he received in bonuses and stock sale profits while CSK was, the SEC contends, committing accounting fraud. The complaint charges that CSK was required to file two accounting restatements related to its overstated vendor allowances while the CEO was serving in that position. The SEC alleges that, in violation of SOX 304, the CEO failed to reimburse CSK for bonuses, or other incentive-based or equity-based compensation, and profits from the sale of CSK stock he received during the 12-month periods following the filing of each of CSK's fraudulent financial statements. Notably, the complaint does not allege that CEO himself engaged in the fraudulent conduct.
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