SEC Can’t Claw Back Bonus Based on Press Release

SAN FRANCISCO (CN) — A press release does not count as a financial report that would require a former Logitech executive to relinquish his $331,000 bonus, but an SEC filing that repeated the misinformation could make him give it up, a federal judge ruled Wednesday.

Erik Bardman, who left his position as Logitech’s chief financial officer in 2013, was sued by the Securities and Exchange Commission in April 2016 under the clawback provision of the Sarbanes Oxley Act.

The SEC accused Bardman and former Logitech controller Jennifer Wolf of lying to auditors and overstating the computer equipment company’s income to conceal poor sales of a video-streaming device.
Logitech issued a press release on April 27, 2011 that overstated its income by $30.7 million. The company submitted its form 8-K financial report to the SEC the next day with the press release attached.
Bardman received his bonus on May 20, 2011 and on May 27 Logitech filed its form 10-K annual earnings report, again inflating the bottom line.
Under Section 304 of the Sarbanes Oxley Act, the SEC can claw back performance-based compensation when companies have to reissue financial statements because of misconduct.
At a hearing last week, lawyers for Bardman and the SEC sparred over whether the filing of the press release and 8-K or the 10-K triggered the law’s 12-month disgorgement period. U.S. District Judge Jon Tigar ruled Wednesday that the SEC could go after Bardman’s bonus based on the company’s 10-K report, but not the press release and 8-K, since neither of those documents led to Logitech filing a financial restatement.
Logitech did restate its 10-K to comply with securities laws, which Tigar noted in his ruling.
“The issuer’s misconduct itself, outside of the preparation of its financial statements, is not what establishes a claim. Rather, the SOX 304 claim is based on the materially noncompliant form or forms that caused or resulted in the restatement,” Tigar wrote. “Logitech restated its Form 10-K, not its Form 8-K, to come into compliance with the securities laws. Therefore, the Form 8-K cannot be used as grounds for a SOX 304 claim.”
While Bardman argued that the restatement of the 10-K was voluntary and not ordered by the SEC, Tigar said the SEC could still use it as a basis for a SOX 304 claim.
“Even absent an order to prepare a financial restatement, it is reasonable to infer that a later voluntary restatement was prepared to comply with the securities laws,” he wrote. “Therefore, the court concludes the SEC has sufficiently alleged that Logitech’s Form 10-K triggered a disgorgement period.”
An SEC spokesman declined to comment.
Bardman’s attorney Emily Griffen did not respond to an email request for comment Wednesday.