SEC Files SOX Claw-back Action
The Commission filed a settled administrative proceeding against two former CEOs of Saba Software, Inc. under the Sarbanes-Oxley claw back provisions. The action is based on the fact that the company has announced it will be required to restate its financial statements but, to date it has not undertaken that action. In the Matter of William Slater, CPA, Adm. Proc. File No. 3-16381 (Feb. 10, 2015).
The action names as Respondents Mr. Slater and Peter Williams II. Mr. Slater served as the CFO and Principal Accounting Officer of Saba Software, Inc. from early December 2008 before accepting a position at another company. Mr. Williams II joined the firm in October 1999 as General Counsel and served as CFO and Principal Accounting Officer from March 2004 through July 2007 and held those positions on an interim basis from October 2011 until January 2012. The company provides cloud-based enterprise learning, talent management and social networking tools to businesses and large organizations.
Previously, the SEC named the company, Patrick Farrell, V.P. of Consulting, and Sjeev Menon, Regional V.P. of Consulting, as Respondents in a financial fraud action. In the Matter of Saba Software, Inc., Adm. Proc. File No. 3-16159 (September 24, 2014). The Order alleged that beginning in 2008, and continuing through the second quarter of fiscal 2012, the time records of the firm were falsified. The scheme was carried out by professional services managers in multiple geographies directing consultants in Saba’s Indian subsidiary. In some instances time was recorded in advance of the event. In others it was not recorded. The point was to meet certain metrics. As a result, over a period from October 2007 through January 2012 the firm overstated reported pre-tax income by about $70 million. The company announced a restatement but it has not been prepared. Its shares have been delisted. The Order alleged violations of each subsection of Securities Act Section 17(a). In addition, it alleges violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5).
The company settled, agreeing to implement certain undertakings which include filing a comprehensive Form 10K for the period ended May 31, 2014. Each Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order, but the order as to the company does not include Exchange Act Section 13(b)(5). The firm will also pay a penalty of $1,750,000. Mr. Farrell will pay disgorgement of $31,832, prejudgment interest and a penalty of $50,000. Mr. Menon will pay disgorgement of $17,875, prejudgment interest and a penalty of $50,000.
The claw-back action
The claw-back action alleges that as former CFOs Messrs. Slater and Williams, during the twelve month period following the filing of periodic reports requiring restatement, were paid bonuses and realized profits from the sales of Saba stock. Neither has reimbursed the company. According, under Section 304 of the Sarbanes-Oxley Act the Order alleged that the Respondents were required to reimburse the company for any bonus or incentive based or equity based compensation paid during the period and the profits realized from the sale of company shares during that period. The Order does not allege wrong doing by either Respondent.
Each Respondent resolved the action, consenting to the entry of a cease and desist order based on Section 304. Mr. Slater agreed to pay the company $337,375. Mr. Williams agreed to reimburse Saba $141,992.
The Commission brought a similar proceeding against the CEO and founder of Saba Software. In the Matter of Babak Yazdani, Adm. Proc. File No. 3-16160 (September 24, 2014). That proceeding was based on the same facts detailed above as well as SOX Section 304. Mr. Yazdani resolved the action, consenting to the entry of a cease and desist order based on the cited Section. Mr. Yazdani also agreed to re-pay $2,570,596 in bonuses and other incentive or equity based compensation and stock sale profits.