The U.S. Securities and Exchange Commission last week filed accounting fraud and other charges against Diebold and former executives of the company. The SEC charged that Diebold engaged in fraudulent accounting practices to inflate the company's earnings to meet forecasts from at least 2002 through 2007. Diebold agreed yesterday to pay a $25 million penalty to settle the allegations.
As these inflated results were used to calculate compensation payouts during the period, the company's former CEO Walden O'Dell has also agreed to reimburse $470,000 in cash bonuses, $1,000,000 in stock, and $85,000 in stock options. Other executives including Gregory Geswein and Kevin Krakora, both former CFOs of the company during the period, have not thus far agreed to settlement.
The first of this rare type of settlement with the SEC was the chairman and CEO of UnitedHealth Group, who settled for funds related to compensation and the proceeds of stock sales received between 2003 and 2006 totaling close to $450 million dollars. Similarly in 2009, the SEC brought a landmark settled enforcement action against the CEO of CSK Auto.
The Sarbanes-Oxley Act of 2002 requires public company CEOs and CFOs to return bonuses and other incentive-based compensation, equity-based compensation and profits on sales of company stock received within the 12 month period following the release of company financials if there is a restatement due to material noncompliance or misconduct. There are several limitations to this general provision. It applies only to CEOs and CFOs, leaves the definition of misconduct ambiguous, and is enforceable only by the SEC.
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