New York Times financial writer Gretchen Morgenson writes on Saturday, 28 December this year, that a bank executive, Daniel T. Poston, former chief financial officer of Fifth Third Bank based in Cincinnati, paid $100,000 in penalties to satisfy an SEC contention that both the bank and Mr. Poston improperly delayed writing down the value of $1.5 billion of nonperforming loans in 2008
Both the bank and Mr. Poston, who became chief strategy and administrative officer at Fifth Third in October, neither admit nor deny the S.E.C.’s allegations.
Unfortunately, the regulatory action did not involve an executive pay clawback under provisions of the Sarbanes-Oxley law. The case illustrates how challenging it is for regulators to pursue such penalties.
SEC filings show that Mr. Poston received incentive pay — stock and option awards — of almost $350,000 the year after the misstatements, the period subject to clawbacks under Section 304 of Sarbanes-Oxley.
There are a multitude of requirements to be met in enforcing this provision: first a restatement of earnings, where a company goes back and adjusts previous results to reflect the accounting errors. These actions must also have been reckless or intentional and, there must be recoverable executive compensation, such as a bonus received or stock sales made within one year.
There is, however, a glimmer of good news -- Don Whalen, director of research at Audit Analytics, thinks Sarbanes-Oxley forced companies to tighten controls over financial reporting, leading to fewer and less severe financial restatements.