FILE PHOTO: This sign is seen at the US Securities and Exchange Commission (SEC) headquarters on May 12, 2021 in Washington, DC, USA. Photo taken on May 12, 2021. Reuters / Andrew Kelly / FILE PHOTO
October 22, 2021
WASHINGTON (Reuters) – The new Democratic leadership of the US securities watchdog is sending a message to high-paid executives in corporate America. If your company fails, your salary is at risk.
Getting compensation is becoming an important part of the agenda of the U.S. Securities and Exchange Commission (SEC), cracking down on corporate fraud and potentially losing millions of dollars in bonuses and profits from the sale of shares. We are raising the stakes of human authorities. ..
Columbia Law School professor John Coffey said: “If implemented properly, it could be a lot more effective than it is today.”
Last week, the SEC reinstated rules left unfinished in the 2007-09 financial crisis and revised plans for US-listed companies to recoup executive compensation for revising financial statements due to non-compliance. applied. Announced that it is needed.
However, in behind-the-scenes enforcement talks with the companies, the SEC is familiar with individual arguments that it has already broken the narrow clawback forces created in 2002 after the Enron and WorldCom accounting scandals. According to four lawyers.
Under this rule, the SEC will oblige the CEO or chief financial officer of a public company to refund a bonus or other incentive-based payment if the company corrects the consequences due to fraud. Wat can be done.
In 2016, a federal court resolved a longstanding question about whether the SEC could withhold payments from officials who were not directly charged with fraud. Executives should not profit from fraudulent revenue, so the agency said it could.
However, according to a new analysis by law firm Covington, the SEC has found a normally minor and fraudulent use of clawback force in the nearly 20 years since 2002, despite potentially hundreds of opportunities. It has been used only 15 times to punish officers who were not directly charged with the act. and Burling LLP.
Gerald Hodgkins, a partner in the company’s Washington office and former deputy director of the SEC’s executive division, said “it’s unclear why the SEC took so little action, but there is a “perception of injustice.” There was a possible reason.
The SEC appears to be changing its stance on the issue.
Executive staff recently proposed that CEOs and CFOs exercise clawback power in private settlement negotiations on matters involving financial paraphrases that have not been charged with illegal activity, four people involved in separate cases. . The lawyer said that it looks like a change in strategy.
Among them is Joseph Dever, an attorney for Cojen O’Connor LLP and a former acting attorney for the SEC.
“It seems that employees are proposing this treatment more often than before,” he said.
At one point, after the company’s problems were resolved, employees suggested reclaiming executive compensation, which one of the other three attorneys said was very unusual.
The three lawyers asked to remain anonymous to discuss personal issues.
Reuters was unable to ascertain the overall frequency with which the SEC was proposing clawbacks in settlement discussions.
However, Democratic Party member Alison Lee, who was the agency’s senior executive counsel from 2015 to 2018, told Reuters in an interview that the 2002 power was “underutilised”.
Lee said he could not comment on an enforcement investigation that is not currently being monitored, but added that he would like to “make sure the reimbursement claims made to shareholders are substantiated.”
Cracking down on businesses is a priority for Democrats, who say the SEC has long been too soft on big businesses.
According to proponents, when properly implemented, writing checks to please regulators is seen as a business cost to businesses.
According to Coffee, investors have been pushing corporate clawback policies to make up for various failures over the past decade, but companies are struggling to get cash.
For example, Goldman Sachs Group, Inc. Malaysia’s 1MDB was unable to receive compensation from former chief operating officer Gary Cohn for Wall Street’s involvement in the Sovereign Wealth Fund’s corruption scandal. He gave money to a charity in return.
That’s why according to experts more tightly regulated clawback tools are important.
Last week, the SEC resumed public comments on additional clawback rules that were first proposed in 2015 but were not finalized. The comment period ends on November 22.
Mandated by the Dodd-Frank Act of 2010, this rule extends beyond the 2002 authority and captures the roles and circumstances of a wide range of companies that may reclaim incentive-based compensation.
Lee is responsible for spotting and enforcing the loophole on businesses and exchanges, but he said it could be a “powerful” accountability tool.
“It is based on common sense that incentive-based rewards that are not actually earned should not be retained,” she said in a follow-up statement. “We are delighted that we are finally moving towards carrying out that mission.”
(Reporting by Chris Prentiss of Washington, Edited by Michelle Price and Matthew Lewis)