10 J. Bus. Entrepreneurship & L. 1 (2017)

handle is hein.journals/jbelw10 and id is 1 raw text is: 











           CLARIFYING THE ORIGINAL
           CLAWBACK: INTERPRETING
        SARBANES-OXLEY SECTION 304
  THROUGH THE LENS OF DODD-FRANK
                        SECTION 954



    J. ROYCE FICHTNER,* PATRICK HEASTON,** AND Lou ANN SIMPSON***

I. Introduction  ................................................................................................   1
II. Sarbanes-Oxley Section 304 and its Ambiguities ..................................... 4
III. The Dodd-Frank Section 954 Clawback ................................................. 8
IV. Section 304 Ambiguity: When is the Issuer Required to Issue a
       R estatem ent?  .....................................................................................   10
V. Section 304 Ambiguity: Defining Material Noncompliance ................ 14
VI. Section 304 Ambiguity: When is Incentive-Based Compensation
       D eem ed  Received? ..........................................................................  17
VII. Significant Questions Left Unanswered in Section 304 ........................ 19
      A . M isconduct ...................................................................................  20
      B. Calculating Profit for Stock  Sales ................................................. 21
V III.  C onclusion  ............................................................................................  22

                           I. INTRODUCTION

     In the early 2000s, major accounting scandals involving reporting viola-
tions and audit failures, which dominated the national headlines, sent the United
States financial markets into turmoil.' The pervasive nature of these scandals
and the fact that many of these companies published glowing financial state-
ments materially overstating their true financial positions resulted in a loss of
investor confidence.2 Many investors paid a heavy price when the truth was re-

    * Associate Dean of Academic Affairs and Associate Professor of Business Law, Drake Uni-
versity.
    ** Aliber Professor of Accounting, Drake University.
    *** Professor of Business Law, Drake University.
    1 JAMES D. COX ET AL., SECURITIES REGULATION: CASES AND MATERIALS 10 (6th ed. 2009)
(stating that approximately a dozen large public companies collapsed during the crisis).
    2 Enron's Plan Would Repay a Fraction of Dollars Owed, N.Y. TIMES, July 12, 2003, at C2.
Shareholders in the Enron Corporation, which was once listed as number seven on the Fortune 500

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