A Few Comments On The SEC's Proposed Claw Back Rules

Earlier this month, the Securities and Exchange Commission announced that it was reopening the comment period on proposed rules for listing standards for the recovery of erroneously awarded compensation.   The SEC first proposed the rules way back in 2015.   At the time, I submitted a ten-page comment letter.  Below are the top-line comments included in my letter:

  • Issuers should be permitted to forego recovery of erroneously awarded incentive compensation if recovery would violate applicable state law.
    • The Proposing Release fails to recognize the distinction between officer status and the employment relationship.
    • State employment law statutes may prohibit recovery of previously paid compensation.
    • The exception of home country law but not state law is arbitrary, capricious, and an abuse of discretion.
    • The exception for home country law should not be limited to laws in effect before the date of publication of the Proposed Rules. 
    • The Commission has failed to consider the economic effect of the disparate treatment of domestic and foreign private issuers.
    • Issuers should not be required to obtain a formal opinion of counsel.
    • Section 954 does not preempt state employee protection statutes.
  • The period covered should be the three-year period preceding the date on which the issuer is required to prepare an accounting statement.
  • Issuers should be permitted to seek recovery should be on an after-tax basis.
  • The SEC should not redefine “executive officer” as “officer”.
  • The Commission should provide issuers with much broader discretion on when they must seek recoupment.
  • Issuers should be permitted to forgo or net overpayments.
  • Issuers should be permitted to indemnify executive officers when required to do so under applicable state or home country law.
    • State law may require issuers to indemnify employees.
    • Issuers may be subject to preexisting contractual obligations to indemnify executive officers.
    • The Commission has misinterpreted the meaning of “will”.

SDCBA Annual Corporate & LLC Update

Tomorrow, my partner, Clark Libenson, and I will be the speakers for the San Diego County Bar Association's Annual Corporate and LLLC Update.   Information on the webinar is available here.