Sarbanes-Oxley Executive Compensation Clawbacks Continue

Yesterday, the U.S. Securities & Exchange Commission (“SEC”) announced another successful “clawback” of executive compensation under the Sarbanes-Oxley Act of 2002. James O’Leary, former Chief Financial Officer of Atlanta-based Beazer Homes USA, was forced to return over $1.4 million in bonus payments and stock sale profits that he made as a result of fraudulent financial reporting in 2006. What is somewhat unique about the case is the fact that the CFO was not implicated in any wrongdoing other than certifying that the financial statements were accurate. The individual who is being criminally prosecuted for the fraud is the Chief Accounting Officer who reported to the CFO during the time period in question.

“Section 304 of the Sarbanes-Oxley Act encourages senior management to take affirmative steps to prevent fraudulent accounting schemes from occurring on their watch,” said Rhea Kemble Dignam, Director of the SEC’s Atlanta Regional Office. “O’Leary received substantial incentive compensation and stock sale profits while Beazer was misleading investors and fraudulently overstating its income.”

This announcement comes on the heels of a related clawback from the CEO of Beazer Homes that totaled more than $6.4 million. Again, in this case, the CEO was not implicated in any criminal wrongdoing. The SEC’s enforcement approach regarding both the CEO and the CFO in this case serve as a reminder to senior executives to ensure their annual certifications are accurate. The only way to know is to have a strong risk and control program in place. Wheelhouse Advisors can help. Visit www.WheelhouseAdvisors.com to learn more.

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