In general, all listed companies must maintain a written claw back policy for the recoupment of certain compensation awarded to executive officers. Some of the specific terms of the executive summary include:

• The claw back policy is triggered when an accounting restatement corrects a material error in a previous financial statement
• The policy applies to incentive-based compensation granted within the preceding three years of the accounting restatement
• Fault or lack thereof is irrelevant to the implementation of the clause

Under the proposal, the claw back clause must contain the following elements:

• Description of the specific type of restatement that triggers the claw back clause;
• Definition of what “incentive-based compensation” is subject to recovery under the claw back clause;
• Statement of the specific time period covered in relation to when the compensation was received by the executive officer;
• Explanation regarding who is covered under the clause;
• Explanation about the amount of recovery authorized under the clause; and
• Statement that recoupment is mandatory unless it is “impracticable.” meaning that the cost of recovering exceeds the total amount of recovered compensation.

For questions about this proposed regulation and possible implications for your company, contact our office to speak with an attorney.

In response to the SEC’s finding of wrongdoing, the hedge fund agreed to pay $2 million in settlement costs, which includes a $300,000 penalty, along with $1.7 million in disgorgement and approximately $180,000 in interest. Under the Dodd Frank Act, the SEC awarded the whistleblower the maximum allowable percentage of the settlement amount.

The Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act became law in July of 2012. The legislation was created in response to financial concerns that brought about the recession and it includes strict regulation standards on financial institutions. It also protects whistleblowers who provide the SEC with information about wrongdoing. Additionally, if the reported information leads to at least $1 million in sanctions, the whistleblower may receive compensation. Awards can range from 10% to 30% of the total sanction amount.

The Implications of the Award

The award in this case represents 30% of the settlement amount, which is the maximum allowable payment. The SEC is sending a strong message to employers that they will be held accountable for retaliation against whistleblowers. According to reports, the SEC whistleblower chief hopes that the substantial award in this case will influence other financial institution employees to report wrongdoing free from fear of retaliation by their employers.

If you have questions or concerns about whistleblower status or employer retaliation, contact our office to speak with a trained attorney.