Since about a month ago, everyone’s been watching the case of Maynard Jenkins to see if, in the end, the SEC would be allowed to “clawback” the $4.1 million bonus he took during a period which turned out to not be profitable for his company.Today the case ended badly for high paid Wall Street execs and traders: The judge allowed the SEC to try to “clawback” Maynard’s bonus.
Importantly, the court has not decided that Maynard has to give back his bonus. But Maynard had tried to get the SEC’s case dismissed. The judge today decided that it could not be dismissed and the SEC’s attempt to claw it back was valid.
This means that the SEC will (probably) continue the matter in court with Maynard, who could fight the matter using the constitution (because his contract may be upheld). It has huge consequences for the financial world which will be announced on Friday, when Feinberg says which banks he will target.
Here’s some background on why this guy’s case might have just decided the financial future of many Wall Streeters who earned bonuses in 2008.
As the Wall Street Journal put it a month ago:
It is the first time the SEC has used a dormant part of the 2002 Sarbanes-Oxley act to recover money from an otherwise innocent CEO whose company restated earnings.
Maynard’s company, CSK Auto, restated earnings because they cooked the books. But that discovery came well after Maynard received his bonus and he was named an innocent party in the mis-accounting scheme.
The end result of Maynard’s case is huge because now the SEC stands on much firmer ground to be able to “clawback” bonuses based on an accounting restatement whether or not the person holds personal (legal) accountability for that restatement.
Here is the Lexology sum-up of the court event today:
In short, the court found that because the statute was unambiguous, and because it was capable of a constitutional application, further development of the facts was required. Whether the SEC’s new interpretation of SOX 304(a) can withstand constitutional scrutiny after discovery remains to be seen. The constitutional inquiry will be influenced by whether the SEC continues to seek all of Jenkins‘ incentive-based compensation and stock profit, or only that which it believes it can tie to CSK’s misconduct.
Regardless of how discovery proceeds, one thing is certain: The SEC’s new interpretation of SOX 304 presents an aggressive departure from its previous enforcement approach. This presents a serious concern for CEOs and CFOs who cannot possibly monitor every action of every employee. Officers and directors around the country should be watching closely as the SEC further develops its new SOX 304 jurisprudence.
Feinberg will announce what he plans to do with this potential new freedom on Friday.
Feinberg declined to say whether the five remaining banks — Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley, and Bank of America, — would be repaying any of the claw-back money; his mandate covers 418 banks, but people on Wall Street suspect the main focus of his mandate will be the large financial institutions.
Soon Maynard and many more execs and traders could join these few who have had to give back their “excessive” bonuses >>