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News | 12.04.09

SEC Broadly Interpreting Sarbanes-Oxley's Clawback Provisions

According to a November 17th article in The Wall Street Journal entitled "CEO of Beazer Receives SEC Notice", the SEC may move to claw back a portion of the compensation Beazer Homes USA paid its CEO during a period for which the company later restated earnings, Such a move is controversial because the SEC has not accused Beazer's CEO of any misconduct. Rather, the SEC is relying on a provision of the Sarbanes-Oxley Act that permits the government to recover incentive-based compensation from senior executives when their company is accused of reporting inaccurate financial data. Alan Levine, a partner in Morrison Cohen's Executive Compensation and Employee Benefits practice, is quoted in the article noting that the SEC may be overstepping its bounds with its interpretation of the claw-back provision. "The Sarbanes-Oxley statute is designed to require repayment from people who have done wrong. Maybe the SEC's argument is that you were asleep at the switch, so you can't benefit. But that means that the CEO of every public company has to know what all the other employees are doing at all times. That's impossible," said Levine.

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