A federal court in Philadelphia has ruled on an issue of first impression that shareholders cannot sue derivatively to recoup executive compensation under the Sarbanes-Oxley Act.
The legislation was passed in response to the corporate corruption scandals that erupted between 2000 and 2002 and criticism that executives of bankrupt companies such as Enron and WorldCom made millions while shareholders were left with nothing.
Section 304 of the statute provides for the reimbursement of bonuses and incentive-based compensation earned by CEOs and CFOs when based on financials that are later found to be inaccurate.
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