The SEC’s Commissioners have rejected a proposed settlement to "claw back" a portion of the bonuses and stock sale profits a former CEO received during a period of accounting fraud. The SEC had previously described the case as the first clawback case under the Sarbanes-Oxley Act against an individual who was not alleged to have otherwise violated the securities laws. The negotiations failed when, according to a report in the Washington Post (available here), the SEC rejected the settlement proposed by its own enforcement staff which would have recovered less than half of the amount sought in the Complaint.

In July 2009, the SEC filed suit against Maynard L. Jenkins, the former chief executive officer of CSK Auto Corporation, asking that he be ordered to reimburse the company and its shareholders more than $4 million that he received in bonuses and stock sale profits while CSK Auto was committing accounting fraud. SEC v. Jenkins, No. 09-cv-01510 (D. Ariz. filed Jul. 22, 2009). The suit alleged violations of Section 304 of the Sarbanes-Oxley Act of 2002. The SEC alleged that while Mr. Jenkins was CEO, CSK Auto filed two restatements related to its overstated vendor allowances. According to the Commission, Mr. Jenkins made $2,091,020 in bonuses and $2,018,893 in company stock sales during that time that should have been reimbursed to CSK Auto pursuant to Section 304. The complaint did not allege that Mr. Jenkins engaged in the fraudulent conduct resulting in the fraudulent accounting. At the time the Complaint was filed, the SEC announced: "[i]t is the first action seeking reimbursement under Section 304 from an individual who is not alleged to have otherwise violated the securities laws."

On March 24, 2011, the parties advised the Court that "Mr. Jenkins and the Staff of the Securities and Exchange Commission have reached a tentative settlement agreement to resolve this matter," noting that "such tentative settlement agreement is subject to approval by the Securities and Exchange Commissioners." According to the Washington Post article, "the proposed settlement was for less than half the amount the SEC originally sought," citing a source familiar with the matter.

The Commissioners rejected the proposal. According to a second source "close to the matter," the combination of two contrasting views resulted in the lack of support for the settlement. In the view of some Commissioners, the amount of the settlement was too low. However, a second view was that the case should not have been brought at all.

The parties advised the Court on Monday of the inability to settle the matter. Judge Robert Bryan ordered the parties to submit a discovery plan and proposed schedule on or before July 29, 2011.