Full Text of SOX 304:
Sec. 304. Forfeiture of Certain Bonuses and ProfitsArticles:
Additional Compensation Prior to Noncompliance With Commission Financial
Reporting Requirements. If an issuer is required to prepare an
accounting restatement due to the material noncompliance of the issuer,
as a result of misconduct, with any financial reporting requirement
under the securities laws, the chief executive officer and chief
financial officer of the issuer shall reimburse the issuer for --
any bonus or other incentive-based or equity-based compensation
received by that person from the issuer during the 12-month period
following the first public issuance or filing with the Commission
(whichever first occurs) of the financial document embodying such
financial reporting requirement; and(b)
Commission Exemption Authority. The Commission may exempt any person
from the application of subsection (a), as it deems necessary and
(2) any profits realized
from the sale of securities of the issuer during that 12-month period.
Source: Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 15 U.S.C. §7243 (2002), 15 U.S.C. Section 7243.
2011.Sept.13 "Clawbacks without Claws" (NY
Times). With respect to the clawback
provision set forth in Section 304
of the Sarbanes Oxley Act, this New
York Times article observes that "The record suggests a bark
decidedly worse than its bite." Some of the supporting statistics
include the SEC's recovery of just over $12 million from nine executives
over the past few years, with half of the targetted companies being
"small and relatively obscure" and with those executives who have
returned funds not admitting or denying the allegations against them.
2015.Feb.10 SEC No-Fault Clawback Succeeds in Settlement (vs. Saba Executives). This SEC announcement of clawbacks totaling about $500,000 from two executives, who were not charged with wrongdoing, warns that --
“During 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,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.
2012.Nov.13 SEC No-Fault Clawback Claim Avoids Dismissal (vs. Arthrocare Executives). A W.D. Texas decision rejects a motion to dismiss in which executives argued that "SOX § 304 either cannot be construed as broadly as the SEC claims; i.e., to impose liability on CEOs and CFOs without any element of scienter, or, alternatively, because § 304 is unconstitutional." SEC v. Baker and Gluk.
2012.Apr.10 SEC AGAIN PURSUES NO-FAULT CLAWBACK UNDER SOX 304. The SEC has announced the filing of a complaint against the CEO and CFO of ArthroCare Corp. who "are not charged with personal misconduct, but they are still required under Section 304 of the Sarbanes-Oxley Act to reimburse ArthroCare for bonuses and stock profits that they received after the company filed fraudulent financial statements."
2011.Nov.16 No Fault Clawback Enforced for $2.7M+ against Former CEO of CKX Automotive: see AZ District Court Order.
Fault Clawback Enforced against Beazer's CFO. See SEC
Release ("According to the SEC’s complaint filed in federal court in Atlanta, James O’Leary is not personally charged with misconduct, but is still required under Section 304 of the Sarbanes-Oxley Act to reimburse Beazer more than $1.4 million that he got after Beazer filed fraudulent financial statements during fiscal year 2006.").
2011 Mar 3: No
Fault Clawback Enforced against Beazer's CEO
for $6.48M cash and restricted stock clawed-back under
SOX 304(b): see SEC Release.
2010 Sept 30: No Corporate Indemnifications
for Income Clawed-back under SOX 304(b): see Cohen v. Viray (2nd Cir.).
2010 June: No Fault of CEO or CFO required for clawback under SOX 304 -- see SEC v. Jenkins (D. AZ 2010).
2008 Dec. 11: No Private Right of Action under SOX 304 -- see In re Digimarc (9th Cir) ("the text and the structure of the Sarbanes-Oxley Act do not demonstrate
an intent to create a private right of action under section 304").