Corporate executives newly vulnerable in Section 304 clawback ruling

(November 14) A U.S. District Court Judge in Austin, Texas has ruled that the officers of a corporation may have their bonuses, stock options and stock profits “clawed back” (ordered repaid) when their corporation violated securities laws — even when those officers were not directly involved in the violation.

The ruling is consistent with previous rulings but goes further by determining that Section 304 of the Sarbannes-Oxley Act does not infringe on the officers’ constitutional Due Process protections. Judge Sam Sparks noted that SOX was drafted to require corporate officers not only obey securities law, but formally certify that their employees have too. The SEC has been increasingly aggressive in pursuing Section 304 clawbacks.

(Alison Frankel editorial for Reuters News Service at