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ARTICLE · 15 JULY 2010

SEC v. Jenkins: No-Fault Clawbacks For Executive Compensation Take Hold

DLA Piper LLP (US)
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In a case of first impression, a federal district court has endorsed the SEC’s interpretation of the clawback provision (Section 304) of the Sarbanes-Oxley Act (SOX) and held that the SEC can seek to clawback incentive-based compensation awarded to the CEO or CFO of a public company that restates its financial statements even when that CEO or CFO is not alleged to be involved in any misconduct associated with the restatement.

United StatesFinance and Banking
Deborah Meshulam
Deborah Meshulam
Grayson Stratton
Grayson Stratton

In a case of first impression, a federal district court has endorsed the SEC's interpretation of the clawback provision (Section 304) of the Sarbanes-Oxley Act (SOX) and held that the SEC can seek to clawback incentive-based compensation awarded to the CEO or CFO of a public company that restates its financial statements even when that CEO or CFO is not alleged to be involved in any misconduct associated with the restatement.

The court's opinion in SEC v. Jenkins, decided on June 9, 2010, is part of a larger trend toward no-fault clawbacks.

Section 304

SOX Section 304 requires public company CEOs and CFOs to reimburse their company for any bonus, other incentive-based compensation, or stock sale profits received during a defined period if their company is required to restate its publicly filed financial statements "due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws."1

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