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Rarely enforced SEC© rules do little to fight earnings manipulation

Publisher: Marketwatch
Author: Francine McKenna

In 2013, after the “London Whale” trading disaster that cost J.P. Morgan Chase more than $6 billion, the bank halved Chief Executive James Dimon’s 2012 compensation, eliminating his cash bonus and saying he bore “ultimate responsibility” for the losses and the internal problems that led to them.

The highly publicized losses might have been a perfect opportunity for the Securities and Exchange Commission to invoke rules, meant to discourage executives from earnings manipulation, that would require Dimon and then-CFO Douglas Braunstein to return the bonuses they were paid as the losses grew.

But while JPM did cut their pay, the SEC© never demanded that the company follow federal “clawback” regulations, which would have required it to determine the repayment amount using a precise calculation and then report details of that process to investors. Neither the company nor the SEC© ever publicly explained why not.

In fact, a new analysis finds, the enforcement of those rules—meant to reclaim compensation paid executives whose companies restated financial results as a result of misconduct—has been virtually nonexistent since they were adopted in 2002.

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