SEC Clawing Back Executive Compensation
The Securities and Exchange Commission recently reached a settlement with the large IT company, Computer Sciences Corp. The company has agreed to pay $190 million to the Commission, and the former chief executive officer is providing $3.7 million in compensation as part of a settlement for financial fraud charges. Computer Sciences has neither admitted nor denied any wrongdoing.
The company was charged with improperly inflating financial results and concealing losses suffered in its multi-billion dollar contract with a British company. Not only did the company and former CEO face fraud charges, but so did eight former finance executives for the company’s international divisions. Five of them agreed to settle and three others are contesting the charges in federal court. Former CEO Michael Laphen agreed to pay $3.7 million total in compensation and an additional $750,000 in fines. Former chief financial officer Michael Mancuso is paying $369,100 in compensation and $175,000 in fines.
How can the SEC go after compensation?
One of the enforcement tools at the SEC’s disposal, which directly affects the wallets of corporate executives, is the clawback provision, a mechanism created under the Dodd-Frank Act. The clawback provision allows the SEC to recover or limit pay, bonuses, and stock profits dispensed to corporate executives during the time period in which their company committed fraud or violated financial reporting rules. The clawback provision was included in the Dodd-Frank Act in response to the accounting scandals at Enron and WorldCom. In the Computer Sciences case, the company had submitted false financial results during 2010 and 2011, enabling the SEC to clawback money obtained by the executives during those years.
The clawback tool, however, is limited in the scope of its application. Only a very narrow set of circumstances can result in executive compensation being recovered, and it only applies to CEOs and CFOs. The SEC, however, is looking to further expand its clawback powers. The agency will soon be issuing its long-awaited proposed rules, which will force companies to clawback or revoke top executives’ pay if the company has to restate the financial results that led to it. The provision will be triggered by all types of restatements, including those issued by mistake. The effect will be very damaging to executives. For example, if you received stock options after your company met its performance target, but somehow a misstatement shows the target was not met, you would be forced to return some or all of that compensation. Furthermore, the new rules would apply to a wider swath of corporate executives, not just the CEO and CFO.
If You Think You May Need A Lawyer, YOU DO. Call Now!
Are you looking for a skilled attorney who can help defend you against fraud charges in either state or federal court? Please contact Attorney Tony Moss at the Tony Moss Firm, L.L.C. to discuss these or any other defense matters. He has locations in Miami and Fort Lauderdale, and is prepared to put his experience to work for you.
