SEC Resumes Clawback of Executive Pay

Financial reporting risk has returned to the headlines with a recent announcement by the Securities & Exchange Commission ("SEC") that it will be "clawing back" prior bonus payments made to a prominent CEO who falsely certified to the effectiveness of internal controls within the company. Section 304 of the Sarbanes-Oxley Act of 2002 allows the SEC to seek reimbursement of bonus payments and/or profits from the sale of securities by certifying executives during the time period when the internal controls are found to be ineffective. Here is an excerpt from the SEC's action:

"The Securities and Exchange Commission today announced a settlement with the chief executive officer of an Atlanta-based homebuilder to recover several million dollars in bonus compensation and stock profits that he received while the company was committing accounting fraud.

According to the SEC’s complaint filed today in federal court in Atlanta, CEO Ian J. McCarthy previously failed to reimburse Beazer Homes USA Inc. for bonuses, other incentive-based or equity-based compensation, and profits from Beazer stock sales that he received during the 12-month periods after his company filed fraudulent financial statements during fiscal year 2006."

During the financial crisis of the past few years, Sarbanes-Oxley has taken a back seat to other more pressing issues. However, now that the dust has settled, we can expect to see more actions such as this one.