Seven years ago, the Securities and Exchange Commission proposed rules that would direct the national securities exchanges and national securities associations to establish listing standards that would require each issuer to develop and implement a policy providing for the recovery, under certain circumstances, of incentive-based compensation based on financial information required to be reported under the securities laws that is received by current or former executive officers, and require disclosure of the policy.   Last fall, the SEC reopened the comment period for those rules.  That comment period expired last November.   Just this week, the SEC's staff of the Division of Economic and Risk Analysis issued a memorandum that provides additional analysis and data on compensation recovery policies and accounting restatements.  Accordingly, the SEC has reopened its proposal for another 30 days.  

In 2015, I submitted this lengthy comment letter, pointing out a number of problems with respect to the proposed rules.  The highlights from my letter are as follows:

1.  Issuers should be permitted to forego recovery of erroneously awarded incentive compensation if recovery would violate   applicable state law.

2.  The Proposing Release fails to recognize the distinction between officer status and the employment relationship.

3.  State employment law statutes may prohibit recovery of previously paid compensation.

4.  The exception of home country law but not state law is arbitrary, capricious, and an abuse of discretion.

5.  The exception for home country law should not be limited to laws in effect before the date of publication of the Proposed       Rules.

6.  The Commission has failed to consider the economic effect of the disparate treatment of domestic and foreign private issuers.

7.  Issuers should not be required to obtain a formal opinion of counsel.

8.  Section 954 does not preempt state employee protection statutes.

9.  The period covered should be the three-year period preceding the date on which the issuer is required to prepare an   accounting statement.

10.  Issuers should be permitted to seek recovery should be on an after-tax basis.

11.  The Commission should not redefine “executive officer” as “officer”.

12. The Commission should provide issuers with much broader discretion on when they must seek recoupment.

13.  Issuers should be permitted to forgo or net overpayments.

14.  Issuers should be permitted to indemnify executive officers when required to do so under applicable state or home country law.

15.  The Commission has misinterpreted the meaning of “will”.

I submitted these comments as an individual and not on behalf of my law firm or any of its clients.