The former CEO of Saba Software, Inc. agreed to repay over $2.5 million in bonuses, other incentive-based or equity-based compensation, and stock sale profits pursuant to Section 304(a) of the Sarbanes-Oxley Act. The action resulted from allegedly wrongful conduct where Saba consultants misstated revenues by manipulating time records by either recording time in advance of performance of work or failing to record time for hours worked in order to achieve their quarterly revenue and margin targets.
Section 304 of the Sarbanes-Oxley Act of 2002 requires the CEO and CFO of any issuer required to prepare an accounting restatement due to material noncompliance with the securities laws as a result of misconduct to reimburse the issuer for (i) any bonus or incentive based or equity-based compensation received by that person from the issuer during the 12-month periods following the false filings, and (ii) any profits realized from the sale of securities of the issuer during those 12-month periods.
There is no allegation the former CEO knew of or participated in the conduct. The SEC order cites the well-known SEC position that Section 304 does not require that a CEO engage in misconduct to trigger the reimbursement requirement. Note that Saba is based in Silicon Valley and the time records were manipulated in India, although the misdeeds were allegedly directed from North America.
There was no word on what happened to the CFO but the finance department was apparently trying to do the right thing. The order states “senior Saba employees were told on multiple occasions by the finance department that the Company’s accountants and auditors needed to understand exactly how many hours were being worked and when (regardless of whether or not they were billed to the customer) in order to ensure that revenue was recognized accurately.”
The former CEO did not admit or deny the findings.