Lawyers Ask Federal Court to Strike Down Sarbanes Oxley 304 Clawbacks as Applied to Innocent Executive


On July 13, 2012, two defendants in an SEC enforcement action moved to dismiss the SEC's complaint, in part on the grounds that Section 304 of SOX was unconstitutional as applied to them. According to the complaint, the SEC sued the two defendants for not reimbursing their company for compensation they received after two separate employees engaged in a scheme that caused the company to issue inaccurate financial reports. Importantly, the SEC did not allege that either of the two defendants participated in, or even knew about, the underlying misconduct that caused the inaccurate financial reporting. Section 304 of SOX allows the SEC to require reimbursement when a material noncompliance with financial reporting requirements is "result of misconduct," but the statute does not specify whose misconduct, or what kind of misconduct triggers the reimbursement obligation.


Topics:  Due Process, Reporting Requirements, Sarbanes-Oxley, SEC

Published In: Administrative Agency Updates, Constitutional Law Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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