Friday, July 24, 2009

SEC Sues CSK Auto Ex-CEO under SOX Clawback - WebCPA

Found the following on WebCPA. It was only a matter of time before the SEC used the Section 304 clawback provisions. Now that they have succeeded, expect the SEC to do more of this.


The Securities and Exchange Commission has asked a court to order the former CEO of CSK Auto Corp. to reimburse the automotive parts company and its shareholders more than $4 million he received in bonuses and stock sale profits while CSK was committing accounting fraud.

The SEC’s enforcement action charges Maynard L. Jenkins of Scottsdale, Ariz., with violations of the Sarbanes-Oxley Act. It is the first action seeking reimbursement under the SOX “clawback” provision (Section 304) from an individual who is not alleged to have otherwise violated the securities laws. The SOX “clawback” provision deprives corporate executives of money that they earned while their companies were misleading investors.

“Jenkins was captain of the ship and profited during the time that CSK was misleading investors about the company's financial health,” said Rosalind R. Tyson, director of the SEC’s Los Angeles Regional Office, in a statement. “The law requires Jenkins to return those proceeds to CSK.”

According to the SEC’s complaint filed in U.S. District Court for the District of Arizona, Jenkins made $2,091,020 in bonuses and $2,018,893 in company stock sales that should have been reimbursed to CSK pursuant to SOX Section 304.

This is the third enforcement action in the SEC's investigation into CSK’s alleged accounting misconduct. In March 2009, the SEC charged four former CSK executives with securities fraud. In May 2009, the SEC brought a settled enforcement action against CSK for filing false financial statements for fiscal years 2002 through 2004.

In July 2008, CSK became a wholly owned subsidiary of O’Reilly Automotive, Inc. According to the SEC’s complaint against Jenkins, CSK was required to prepare an accounting restatement due to its fraudulent conduct. While Jenkins served as CEO, CSK filed two such restatements related to its overstated vendor allowances.

The SEC alleges that, in violation of Section 304, Jenkins failed to reimburse CSK for bonuses, or other incentive-based or equity-based compensation, and profits from the sale of CSK stock he received during the 12-month periods following the filing of each of CSK’s fraudulent financial statements. The SEC’s complaint does not allege that Jenkins engaged in the fraudulent conduct.

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