SARBANES-OXLEY ACT OF 2002
Sarbanes-Oxley § 304
Forfeiture of CEO and CFO Bonuses (Clawback)
KEY FACTS
- Statutory provision: Sarbanes-Oxley § 304 under the Sarbanes-Oxley Act of 2002.
- Scienter standard: No Personal Misconduct Required for Issuer Misconduct.
- Standard statutory remedies: Mandatory reimbursement of executive incentive compensation and stock sale profits to the company.
Statutory Scope & Legal Description
Requires CEOs and CFOs of issuers that restate financials due to material noncompliance as a result of misconduct to reimburse the issuer for bonuses, incentive pay, and equity profits received during the 12-month period following the filing.
Legal Elements Required for Enforcement Liability
- 1 Accounting restatement required due to material noncompliance
- 2 Misconduct by any person at the issuer
- 3 Executive need not have participated in the fraud personally to be subject to clawback
Legal Standards Profile
Scienter Burden: No Personal Misconduct Required for Issuer Misconduct
Statutory Remedies: Mandatory reimbursement of executive incentive compensation and stock sale profits to the company.
Jurisdiction: United States Federal Law
Enforcement Precedents Charging Sarbanes-Oxley § 304
3 Selected Precedents| Case | Status | Overstatement | Penalties |
|---|---|---|---|
| Computer Associates: $2.2B '35-Day Month' Revenue Backdating Routinely kept corporate accounting books open past quarter ends to backdate hundreds of millions in software license sales. | Adjudicated | $2.2B | $225.0M |
| Brocade Communications: Criminal Options Backdating Scheme CEO Gregory Reyes retroactively selected dates when stock traded at historic lows to grant heavily in-the-money executive stock options. | Adjudicated | $150.0M | $7.0M |
| UnitedHealth Group: Decades-Long Options Backdating and $400M Clawback Systematically backdated stock option awards to historical quarterly trading lows, avoiding compensation expense. | Settled, neither admitted nor denied | $1.5B | $400.0M |