Securities and Exchange Commission v. Jenkins

Maynard Jenkins (defendant) was the chief executive officer (CEO) of CSK Auto Corporation (CSK), a public company that restated its financial statements for the years 2002–2004 due to intentionally improper accounting practices that overstated CSK’s income. From May 2003 to May 2005, Jenkins received over $2 million in bonuses and other incentive-based and equity-based compensation from CSK and realized over $2 million in profits from selling CSK securities. The Securities and Exchange Commission (SEC) (plaintiff) sought a court order requiring Jenkins to reimburse CSK for these amounts pursuant to § 304 of the Sarbanes-Oxley Act of 2002, which provided that if an issuer is required to restate its financial statements due to the issuer’s material noncompliance, resulting from misconduct, with the financial reporting requirements under the securities laws, the issuer’s CEO and chief financial officer must reimburse the issuer for any bonus or other incentive-based or equity-based compensation they received, or any profits they realized from the sale of the issuer’s securities, during the 12-month period following the first public issuance of the erroneous financial statements. The SEC did not allege that Jenkins was aware of CSK’s accounting errors or that he participated in the misconduct that caused them. Jenkins filed a motion to dismiss for failure to state a claim, contending that to be liable for reimbursement under § 304, he must have personally engaged in misconduct. Alternatively, Jenkins argued, the SEC had to specify the exact amount of reimbursement it sought from him and how that amount related to CSK’s accounting errors.