SAN FRANCISCO (CN) – Lawyers for the Securities and Exchange Commission and former Logitech CFO Erik Bardman wrangled Thursday over whether Bardman should have to give up his $331,000 bonus because he misstated the company’s earnings in a press release in 2011.
The public announcement released on April 27, 2011, misstated Logitech’s 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.
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.
Whether Bardman will have to forfeit his bonus may very well hinge on what the court’s interpretation of what a “financial reporting requirement is.”
The Sarbanes Oxley Act requires that the actual “financial document embodying such financial reporting requirement” be restated, and Bardman claims only Logitech’s form 10-K earnings report, filed in May 2011, contained final, audited financial statements that comply with Generally Accepted Accounting Statements that could be restated.
At Bardman’s motion to dismiss hearing Thursday, SEC lawyer Kevin Lombardi argued that the press release counts as a financial reporting requirement, since Logitech submitted it to the SEC along with its form 8-K and 10-K that also misstated the company’s income.
In any case, Lombardi said, SOX 304 doesn’t specify that the misstatement and restatement arise from a single financial reporting requirement.
“Here you have the misstated operating income arising from the same misconduct,” Lombardi said.
Emily Griffen, representing Bardman, countered that SOX 304 limits the clawback of bonuses received “during the 12-month period following the first public issuance or filing with the commission of the financial document embodying such financial reporting requirement.”
Bardman received his bonus on May 20, 2011. The form 10-K was filed on May 27, and Bardman argues the 12-month clawback period should have begun on May 27.
U.S. District Judge Jon Tigar dismissed without prejudice the SEC’s SOX 304 claim against Bardman in October 2016 because its initial complaint didn’t specify whether the 12-month period started on the day of Logitech’s April 27, 2011, earnings release, or the filling of its 10-K financial report on May 27, 2011.
Tigar said he wanted the lawyers to address that point at Thursday’s hearing.
Griffen said the issuance of a press release isn’t enough to trigger that 12-month period.
“The issuance of a financial statement has to be in a from and format the complies with GAAP,” Griffen said. “The connection has to be to an audited GAAP compliant issued financial statement, not press releases or earnings releases. Furthermore the issuance of an earnings release is not an issuance of financial statement because it is not in the form and format that complies with GAAP.”
Tigar responded, “There might be a case where there’s a noncompliance with GAAP, like a comma is out of place, but here we have several million dollars of overstated earnings. I don’t think anybody looks at this and says there’s a GAAP problem here.”
He took the arguments under submission.
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