| JULY 22, 2009, 10:01 P.M. ET
SEC Orders Ex-CEO to
The Securities and Exchange Commission for
the first time Wednesday ordered an executive to return compensation awarded
during years the company misstated financial results -- even though the
executive himself wasn't accused of wrongdoing.
In a step that could have broader
repercussions, the SEC told Maynard L. Jenkins, the former chief executive
of CSK Auto Corp., to give the company back more than $4 million in bonuses
and equity compensation he'd earned between 2002 and 2004. Those were years
during which the Phoenix auto-parts retailer engaged in fraudulent
accounting that boosted its pre-tax income by a total of $66 million, the
SEC alleges. CSK restated its earnings for those years twice.
The civil action, filed in U.S. District
Court in Arizona, represents the SEC's boldest test of the ``clawback''
provision of the 2002 Sarbanes-Oxley securities-reform law. That provision
requires CEOs and chief financial officers to return incentive and equity
compensation when companies restate results because of misconduct.
Critics say the provision is vague and poorly
worded; it doesn't specify who must be involved in the misconduct. Most
companies interpret the law to mean that executives have to be culpable
themselves before they can be asked to return money. The SEC itself used the
provision rarely, and only in cases where the agency also charged executives
with other wrongdoing.
Mr. Jenkins' lawyer, John Spiegel of Munger,
Tolles & Olson, said in a statement that the SEC was ``overreaching'' since
the SEC has not charged Mr. Jenkins with any misconduct, or even knowing
about the accounting problems.
Rosalind Tyson, regional director of the
SEC's Los Angeles regional office, says CEOs must take responsibility for
corporate-earnings statements, which they're required to certify. ``They
should put their money where their mouths are,'' says Ms. Tyson.
O'Reilly Automotive Inc., which bought CSK in 2008, declined to comment
on the action.
The new SEC stance comes amid intense
criticism about big paydays for some executives whose firms later collapsed
during the financial crisis. Congress in February adopted broader clawback
provisions for companies that take federal bailout aid.
More companies are adopting clawback
policies. Compensation data-tracker Equilar Inc. says 64% of Fortune 100
companies had clawback provisions last year, up from 42% in 2007. Most of
those provisions apply only when executives are involved in misconduct.
The SEC action against Mr. Jenkins could set
a dangerous precedent, says Steven J. Friedman, head of the
executive-compensation practice at law firm Littler Mendelson.
``I think this is a wake-up call for
companies to make sure they're very careful in how they report'' results,
says Mr. Friedman. ``Clearly they understand that the SEC is now willing to
Write to Phred Dvorak at
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