On February 10, 2015, the Securities and Exchange Commission (the “SEC”) announced that two former CFOs have agreed to return bonuses and stock sale profits they received while the company they worked for was committing accounting fraud.
Section 304 of the Sarbanes-Oxley Act of 2002 provides that if a company is required to prepare an accounting restatement due to some material noncompliance with any financial reporting requirement under the securities laws that is due to misconduct, the CEO and CFO must reimburse the company for:
- any bonus or other incentive-based or equity-based compensation received by that person from the company during the 12-month period following the first public issuance or filing with the SEC (whichever first occurs) of the financial document embodying such financial reporting requirement; and
- any profits realized from the sale of securities of the company during that 12-month period.
The two former CFOs were not personally charged with the company’s misconduct, but they were still required to reimburse the company for bonuses and stock sale profits received while the fraud occurred.
The SEC noted “[d]uring any period when a company materially misrepresents its financial results, even executives who were not complicit in the fraud have an obligation to return their bonuses and stock sale profits to the company for the benefit of the shareholders who were misled.”