A district court should not have approved a $35.2 million settlement that would have insulated two former top executives of a body armor company from liability under the Sarbanes-Oxley Act, a federal appeals court ruled Thursday.

The 2nd U.S. Circuit Court of Appeals ruled in Viray v. Brooks, 08-3860-cv, that only the Securities and Exchange Commission has the authority to exempt the executives from §304 of the act, 15 U.S.C. §7243, which requires chief executive officers and chief financial officers to reimburse their companies for bonuses and profits from stock sales in the 12 months following the filing of a false financial report.

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