SOX Clawback May Affect Dell

The executive compensation forfeiture provision in Sarbanes-Oxley has been a long-ignored clause of the landmark legislation, but, according to a story in Financial Week, some securities lawyers think recently disclosed accounting improprieties at computer maker Dell may have handed the Securities and Exchange Commission an enforcement opportunity that’s hard to ignore.

Section 304 of Sarbanes-Oxley states that CEOs and CFOs of companies that have to restate earnings because of financial “misconduct” must pay back the bonuses and incentive compensation that they received from their companies. Several attempts by private litigants to recoup compensation through Section 304 claims were quashed by courts that determined only the SEC could enforce the rule, yet the provision was never invoked by the SEC in the first four years of life under SOX.

“Section 304 isn’t a ‘forgotten’ clause of Sarbanes-Oxley, it just hasn’t been used very often yet,” said Jim Barrall of law firm Latham & Watkins.

That may be changing. In the last six months, the SEC has cited the bonus forfeit clause of Section 304 three times in complaints filed against executives of companies that have booked restatements. “We have used it before and we will use it again as appropriate,” said SEC spokesman John Nester.