Former CEO Fights Giving Back Bonuses and Proceeds

September 18, 2009 ( - Former CSK Auto Corp. CEO Maynard L. Jenkins has filed a motion to dismiss an action by the Securities and Exchange Commission (SEC) that seeks the return of bonuses and stock sale profits received by Jenkins though he had nothing to do with accounting fraud at his former company.

The National Law Journal reports that in his motion, Jenkins argues that the SEC’s interpretation of Section 304 of the Sarbanes-Oxley Act is unprecedented and conflicts with previous cases the commission has brought against corporate executives under the statute. Historically, the SEC has wielded Section 304 against executives who were alleged to have been participants in an accounting fraud, the news report said.

The National Law Journal explains that Section 304 requires chief executive officers and chief financial officers to “reimburse” the company for certain bonus payments and stock sales if “as a result of misconduct” the company was required to issue an accounting restatement.

“The SEC’s nonsensical view is that Mr. Jenkins must pay (literally and figuratively) for that misconduct by others because he was the ‘captain of the ship,’ despite the fact that under its own view of the evidence, his crew was mutinous — deceiving him, and secretly circumventing the ship’s controls,” the motion says, according to the news report.

The SEC’s complaint does not allege that Jenkins engaged in the fraudulent conduct. Its enforcement action was described as the first action seeking reimbursement under the SOX “clawback” provision from an individual who is not alleged to have otherwise violated securities laws (see SEC Socks Former CEO With SOX Clawback Move ).

In March 2009, the SEC charged four former CSK executives with securities fraud, and in May 2009, the SEC brought a settled enforcement action against CSK for filing false financial statements for fiscal years 2002 through 2004. In the motion to dismiss the action against him, Jenkins said those charges suggest he was a victim, rather than the perpetrator, of the alleged fraud at CSK, in which the other executives misled him.

The motion concludes that in any event, Section 304 does not apply because CSK was acquired in 2008 by O’Reilly Automotive Inc. and is no longer an issuer of public securities.