On Tuesday, November 15, 2011, the SEC announced that it had reached a settlement with Maynard L. Jenkins, the former chief executive officer of CSK Auto Corporation, who agreed to re-pay approximately $2.8 million of the over $4 million in bonus compensation and stock profits that he received while the company was committing accounting fraud. This settlement, which still most be approved by the Court, comes almost four months after the SEC rejected a previous settlement proposed by its own enforcement staff which would have recovered less than half of the amount sought in the Complaint (as previously discussed here).
The SEC’s Complaint in SEC v. Jenkins, No. 09-cv-01510 (D. Ariz. filed Jul. 22, 2009) alleged violations that, while Mr. Jenkins was CEO, CSK Auto committed accounting fraud related to overstated vendor allowances, resulting in the filing of two restatements. 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 of the Sarbanes-Oxley Act. 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 a subsequent Washington Post article, that "proposed settlement was for less than half the amount the SEC originally sought." In July, the parties advised the Court that the Commissioners rejected the proposed settlement, apparently for conflicting reasons (according to the Post article, some thought it too low, while some thought the case should not have been brought at all).
Judge Robert Bryan directed the parties to meet for a settlement conference in late August (which was subsequently moved to late September). On November 15, 2011, the SEC filed with the Court a Consent Order signed by Mr. Jenkins and a Proposed Final Judgment. In the Consent Order, Mr. Jenkins agreed to reimburse O’Reilly Automotive, Inc. (CSK Auto is a wholly-owned subsidiary of O’Reilly) a total of $2,796,467 (in two payments – over $2 million in 30 days and the balance in one year).
Although the amount appears to be an increase from the original proposed settlement, it is, as Steve Quinlivan pointed out in his post on the Dodd-Frank.com Blog, "substantially less than the SEC originally alleged."