Last summer, when the Securities and Exchange Commission sued former CSK Auto CEO Maynard Jenkins to recover $4 million he earned between 2002 and 2004, the agency made history: It was the first time the SEC had brought an enforcement action solely under the clawback provision of Sarbanes-Oxley. The suit didn’t charge Jenkins with any wrongdoing; the SEC was simply trying to recoup the bonus and stock compensation Jenkins received during the period for which the company had to restate earnings allegedly because of fraud committed by others. The case surely made more than a few CEOs grab their wallets, but Jenkins’ lawyers at Munger, Tolles & Olson are trying to allay fears in a just-filed motion seeking to dismiss the action.
The Munger Tolles team, led by John Spiegel, argues that the SEC’s suit is not allowed either under the clawback provision of Sarbanes Oxley or the Constitution, mainly because Jenkins was not accused of any wrongdoing.
“The SEC concedes that the complaint does not allege that Mr. Jenkins received any inflated amounts, either in bonuses or stock sale profits, as a result of the misstated financials,” they wrote. “The SEC nevertheless persists in asserting that [the SOX clawback provision] requires an innocent man such as Mr. Jenkins to forfeit those bonuses and stock sale profits, regardless if they would have been received under the restated numbers, because others committed alleged misconduct without Mr. Jenkins’s knowledge and actively concealed such misconduct from him.”
In a response to a previous Munger motion to dismiss, the SEC argued that the “plain language” of the Sarbanes-Oxley clawback provision does not require a finding that a CEO personally engaged in wrongdoing to trigger the reimbursement.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.