Monday, October 11, 2010

Bringing a New Ethics to the Marketplace: SOX 304, Dodd-Frank 954

SOX Section 304 and Dodd-Frank Section 954 present the SEC with a critical test. Each Section provides for the claw back of certain executive incentive executive compensation when there is a restatement. The challenge for the Commission is to use its authority under each Section to encourage the new ethics in the marketplace each is designed to foster.
Section 304 was passed as part of the Sarbanes Oxley Act in August 2002. It gives the Commission the authority to seek the repayment of certain CEO and CFO incentive-based compensation and stock trading profits when the executive’s company must restate its financial statements because of misconduct. The Section does not specify that the misconduct be that of the CEO or CFO.
Dodd-Frank Section 954, now Exchange Act Section 10D, is similar. It expands the class of executives whose incentive compensation may have to be repaid from the CEO and CFO to executive officers, an undefined term. It also expands the time period for which repayment is required from the one year in Section 304 to three years, while dropping the requirement that wrongful conduct cause the restatement. The claw back is, however, limited to what appears to be disgorgement, rather than the entire bonus.
Click Here to Read: Bringing a New Ethics to the Marketplace: SOX 304, Dodd-Frank 954

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