The U.S. Court of Appeals for the Ninth Circuit reversed a district court’s ruling interpreting Section 304 of the Sarbanes-Oxley Act (“SOX”) in an enforcement action filed by the SEC alleging that defendants participated in a scheme to defraud investors by overstating revenue by millions of dollars. SOX 304 requires reimbursement of certain types of compensation, such as bonuses or equity-based compensation received by CEOs and CFOs, within 12 months of the public issuance or filing of financial statements that are required to be restated due to a reporting error that is a result of “misconduct.” Previously, the SEC had sought to apply SOX 304 against CEOs and CFOs who were alleged to be personally involved in the wrongdoing leading to the restatement. However, in this case, “it is the [misconduct of the issuer of the financial statements] that matters and not the personal misconduct of the CEO or CFO.” The panel reversed the district court’s bench trial order, vacated the judgment, and remanded for a jury trial.

View the opinion in U.S. Securities & Exchange Commission v. Jensen, No. 14-55221 (9th Cir. Aug. 31, 2016).