Imagine Nero, fiddling while Rome burned. 

Today's modern day Nero is Ian McCarthy, the Chief Executive Officer of Beazer Homes USA, a publicly-traded homebuilder.  He agreed to repay the company his 2006 incentive bonus to settle SEC charges that he received several million in bonus compensation and stock profits while the company was committing accounting fraud.

The same Mr. McCarthy, who previously failed to reimburse Beazer for bonuses, other incentive-based or equity-based compensation, and profits from Beazer stock sales that he received during the 12-month periods after his company filed fraudulent financial statements during fiscal year 2006.

    Section 304 of Sarb-Ox.   The SEC brought previous enforcement actions against the company and its former Chief Accounting Officer, who perpetrated the fraud.   While not personally charged for the misconduct, McCarthy is still required under Section 304 of the Sarbanes-Oxley Act to reimburse the issuer for incentive-based compensation and stock sale profits received during that fraudulent period. The settlement with McCarthy is subject to court approval.

"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 about financial results.  This provides an important incentive for senior executives to be vigilant in preventing misconduct and ensuring that companies comply with financial reporting requirements."   -- Director Robert Khuzami, SEC Enforcement.

Without admitting or denying the SEC’s allegations, McCarthy agreed to reimburse Beazer $6,479,281 in cash, 40,103 restricted stock units (or its equivalent), and 78,763 shares of restricted stock (or its equivalent). This reimbursement represents McCarthy’s entire fiscal year 2006 incentive bonus ($5,706,949 in cash and 40,103 in restricted stock units), $772,232 in stock sale profits, and 78,763 shares of restricted stock granted in 2006.

Section 304 of the Sarbanes-Oxley Act requires reimbursement by certain senior corporate executives of any bonus or other incentive-based or equity-based compensation received during a period in which a company was in material non-compliance with financial reporting requirements due to misconduct, as well as profits from stock sales during that same period. This can include an individual who has not been personally charged with the underlying misconduct or alleged to have otherwise violated the federal securities laws.

According to the SEC’s complaint against McCarthy, Beazer was required to prepare accounting restatements for the fiscal year ended Sept. 30, 2006 and first three quarters of fiscal 2006 due to its fraudulent conduct, which consisted of a manipulation of Beazer’s land development and house cost-to-complete accounts as well as the improper recording of certain model home financing transactions as sales for the purpose of increasing Beazer’s income.

Beazer settled an SEC enforcement action in September 2008, and the SEC charged its former chief accounting officer Michael T. Rand in July 2009. The litigation against Rand is still ongoing.

For further details, go to:    [SEC News 11-61, 3/3]