On Aug. 31, 2016, the United States Court of Appeals for the Ninth Circuit reversed a district court decision with respect to liability of a CEO and CFO in connection with their certifications to the Form 10-Q and Form 10-K. Specifically the Court found the following.

  • Rule 13e-14 of the Exchange Act, which sets forth the requirement of CEOs and CFOs to certify as to the accuracy of the financial statements contained in Form 10-Ks and Form 10-Qs, has an implicit truthfulness requirement.This requirement obligates the signing officer to attest to the accuracy of the statements made in the certifications.As a result, the Court reversed the district court’s ruling that Rule 13e-14 does not provide the SEC with a cause of action for making false certifications.
  • Section 304, which requires the CEO and CFO to reimburse a company for certain incentive- or equity-based compensation if the company’s financial statements are restated due to the company’s material noncompliance with financial reporting requirements due to misconduct, only requires misconduct by the company, not the CEO or CFO.Consequently, the Court reversed the district court’s ruling that the defendants did not violate Section 304 of SOX because the company’s financial restatement was not due to misconduct by the former executives.