In the lead-up to the Financial Fiasco that broke in 2007-2008, and continuing now, executives of companies under the jurisdiction of the Securities and Exchange Commission received payments including stock options even though their companies lowered their earnings reports. The Dodd-Frank Act required the S.E.C. to write a new rule which would change the law to make it simpler for companies to recoup payments they had already made to executives in the event that those companies had to report lower earnings during the executives' financial watch:
- The availability of so-called "clawbacks" would be expanded to cover the past as well as the current executives already covered under Federal law in the Sarbanes-Oxley Act of 2002.
- Proof of intentional misconduct would not be required in order for the companies to recoup the monies they had already paid. (The Sarbanes-Oxley Act requires proof of intentional conduct.)
- Companies could recover stock options as well as salaries and bonuses in cash, whereas Federal law did not previously authorize recovery of stock options.
The fairly clear requirements of the Federal law are summarized in Gretchen Morgenson, "Fair Game / A Blank Page in the S.E.C. Rule Book" p. 1, col. 4 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, November 9, 2014).
To say again, the S.E.C. has yet to issue the clawback rule clearly required by Congress when it passed the Dodd-Frank Act in 2010.
In the past 4 years, the S.E.C. has succeeded in finally writing 94 out of 102 regulations which Dodd-Frank required it to write. Of the remaining 8, there are 3 related to money paid to executives.
Reportedly, what is pretty clearly a simple issue has been made into a complicated one by the financial industry and its lawyers unwilling to allow any such rule to be issued. See Gretchen Morgenson, New York Times, supra, quoting Dennis M. Kelleher, CEO of Better Markets.
And, undoubtedly when an overly long and complicated rule is finally issued, they will lead the chorus of complaints against it, first and foremost because the rule-to-be-issued will be too long and unnecessarily complicated.
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