(Corrects name of attorney in sixth paragraph.)
Beazer Homes USA Inc. (BZH) Chief Executive Officer Ian McCarthy agreed to return $6.5 million in a clawback of compensation he received while the firm doctored financial statements as the housing crisis unfolded, the Securities and Exchange Commission said.
McCarthy, 58, had failed to reimburse Beazer for bonuses and other incentive-based pay in the year after the company filed fraudulent financial statements for 2006, the SEC said today in a complaint filed at federal court in Atlanta. The settlement, which includes $772,232 in stock-sale profits and more than 78,000 restricted shares, represents his entire 2006 bonus, the agency said.
Beazer restated financial results for the fiscal year that ended Sept. 30, 2006 after the SEC accused the Atlanta-based homebuilder of falsifying reports for the purpose of increasing income, according to the complaint. In 2009, the SEC sued Michael Rand, Beazer’s chief accounting officer at the time of the wrongdoing, saying he inflated earnings and misled auditors.
“Today’s action makes clear that incentive compensation and stock sale profits for CEOs and CFOs is subject to a clawback if received while a company was deceiving its shareholders,” SEC Enforcement Director Robert Khuzami said in a statement. “This provides an important incentive for senior executives to be vigilant in preventing misconduct and ensuring that companies comply with financial reporting requirements.”
As CEO, McCarthy certified the accuracy of Beazer’s financial reports, the strength of its internal controls, and the lack of fraud during fiscal year 2006, the SEC said. He wasn’t accused of participating in the fraud and settled without admitting or denying wrongdoing, the agency said.
Samuel Winer, McCarthy’s attorney at Foley & Lardner LLP, didn’t immediately return a call seeking comment. Beazer resolved the SEC’s accounting fraud claims in September 2008 without paying any financial penalties.
The Sarbanes-Oxley Act of 2002 gave the SEC authority to seize bonuses and stock-sale profits from CEOs and finance chiefs at firms that restate earnings because of misconduct even if the executives weren’t involved in the violations. The SEC tested that authority in 2009, demanding that Maynard Jenkins reimburse Phoenix-based CSK Auto Corp. for $4.1 million in incentive and stock-based pay he got as CEO from 2002 to 2006.
The CSK case marked the first time the agency invoked the Sarbanes-Oxley clause to seize compensation from an executive. Jenkins lost a bid to have the lawsuit thrown out.
In June 2010, when the agency accused Diebold Inc. (DBD) of using fraudulent accounting to inflate earnings, the company’s former CEO, Walden O’Dell, agreed to give up more than $470,000 in bonuses, 30,000 shares of stock and options for 85,000 shares. He wasn’t accused of participating in the misconduct.
The SEC didn’t claw back pay from Dell Inc. (DELL) CEO Michael Dell after alleging that the computer maker misled investors about how it met earnings targets and used fraudulent accounting to pad results from 2003 to 2007. Dell, the company’s founder, agreed to pay a $4 million fine over the alleged violations.
Congress approved Sarbanes-Oxley in response to accounting scandals at Enron Corp. and WorldCom Inc. The Dodd-Frank Act, enacted last year, strengthened the Sarbanes-Oxley clawback provisions, saying executives must return three years of bonuses and stock options “in excess of what would have been paid” when their employers restate results because of “material noncompliance” with securities laws.
The SEC action against McCarthy came as Beazer shareholders questioning how the company’s executives are paid. Beazer was one of only two companies where shareholders voted “no” on pay packages for company executives in advisory votes under the SEC’s new “say-on-pay” rule.