November 18, 2011

SEC Obtains Another Clawback Without “Misconduct”

Earlier this week, the SEC announced that the former CEO of CSK Auto Corporation had agreed to return $2.8 million in bonus compensation and stock profits that he received while the company was committing accounting fraud. Steve Quinlivan notes in his blog how the SEC initially was seeking $4 million to be returned.

Although Maynard Jenkins was not personally charged with “misconduct,” he was still required under the clawback provision – Section 304 – of Sarbanes-Oxley to reimburse CSK Auto for incentive-based compensation and stock sale profits that he received during the company’s fraudulent period. As you may recall from a series of blogs on this case (here is the first blog), this action marked the SEC’s third SOX clawback case against someone who was not alleged to have otherwise violated the securities laws (this Beazer Home CEO settlement was the first and this Beazer Home CFO settlement was the second one obtained by the SEC, even though the CSK Auto case was originated before those two). The Jenkins settlement is now subject to court approval.

The SEC previously charged 4 former CSK Auto executives who perpetrated the accounting fraud, and separately charged the company for filing false financial statements for fiscal years 2002 to 2004. The company settled the charges, and the litigation against three of the former executives is continuing (CSK’s former chief operating officer has since died). The U.S. Department of Justice brought a criminal indictment against those same executives, who have pleaded guilty to various charges. CSK Auto recently entered into a non-prosecution agreement with the DOJ in which it agreed to pay a $20.9 million penalty.

Senators Introduce “STOCK Act” to Stop Congressional Insider Trading

In the wake of the news that some members of Congress are trading on nonpublic inside information – and the fact that it’s legal for them to do that, but for the rest of us – two separate bills have been introduced in the Senate to stop Congressional insider trading, as noted in this article.

Dodd-Frank: GAO Report Urges More Agency Coordination

In the “Dodd-Frank Blog,” Ethan Mark notes a new GAO report analyzing how the federal regulators are coordinating their rulemaking, etc. Here is an excerpt from Ethan’s blog:

GAO examined the 32 final Dodd-Frank Act rules in effect as of July 21, 2011; the regulatory analyses conducted for 10 of the 32 rules that allowed for some level of agency discretion; statutes and executive orders requiring agencies to perform regulatory analysis; and studies on the impact of the Dodd-Frank Act. GAO also interviewed regulators, academics, and industry representatives.

The GAO report found that regulators had coordinated on some of the rules that were effective as of July 2011. It noted such coordination is a positive stepping stone for future coordination. However, GAO also found that most of the coordination, to date, had been informal and ad hoc. GAO also found that most of the federal financial regulators included in its review, including the CFPB, did not have formal policies to guide interagency coordination. According to GAO, while informal and ad hoc coordination can produce the desired results, such coordination can break down when disagreements arise or other work becomes pressing.

Formal policies can institutionalize informal coordination practices and provide a framework for coordinating, helping to ensure that regulators are appropriately consulted and that their views, including conflicting viewpoints, are addressed in a consistent and transparent fashion. Given its membership and charge to help facilitate coordination among its member agencies, GAO believes FSOC is positioned to work with the federal financial regulatory agencies to establish compatible policies that would guide and facilitate interagency coordination among its members throughout the course of Dodd-Frank Act rulemakings.

– Broc Romanek