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In the early 2000s, major accounting scandals involving reporting violations and audit failures sent the United States financial markets into turmoil. Congress and President George W. Bush reacted to the controversy by passing the Public Company Accounting Reform and Investor Protection Act, better known as the Sarbanes–Oxley Act (SOX), in July of 2002. Section 304 created an explicit procedure, whereby the SEC could disgorge or clawback a CEO or CFO’s incentive-based compensation or stock gains when such profits were based on inflated financial statements later required to be restated to reflect the company’s true financial position. When the stock market crashed again in the fall of 2008, Congress began to pursue the idea of creating another clawback program. In 2010, President Obama signed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act) in order to strengthen corporation governance and avoid oversight issues that had surfaced during the latest crisis. Section 954 of the Dodd–Frank Act created a new co-existing clawback program that tasked the individual boards of directors, rather than the SEC, with enforcement. Recently, the SEC issued proposed regulations to regulate the section 954 clawback program. Because of the similar language in the two clawbacks, many of the regulations appear applicable to the section 304 clawback as well. This Article will analyze section 304 and identify eight ambiguities that plague its application. The article will then discuss the new section 954 clawback and the proposed regulations that appear to provide clarity to some of the more ambiguous questions surrounding the application of section 304. Finally, it will reference ambiguities still lacking significant clarification.

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