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Federal Court Authorizes Clawback of Bonuses from CEO Under SOX

By Robert S. Reder

In a case of first impression, SEC v. Jenkins, CV-09-1510-PHX-GMS (D. Ariz. June 9, 2010), the United States District Court for the District of Arizona refused to dismiss an action brought by the Securities and Exchange Commission (SEC) seeking reimbursement of bonuses and securities trading profits from a corporate CEO under Section 304 of the Sarbanes-Oxley Act of 2002 (SOX). The court ruled that the SEC's complaint properly stated a claim against the CEO, who had certified his company's inaccurate financial statements but otherwise had no knowledge of the accounting irregularities that led to the company's filing two separate financial restatements. In view of previous federal court decisions limiting the reach of Section 304 (for instance, by denying private plaintiffs an implied right of action under the statute), as well as other sections of SOX, it is interesting to note that the Jenkins court passed up an opportunity to narrowly construe this key provision of the SOX legislation.

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