The SEC has for the first time invoked specific claw-back provisions of the Sarbanes-Oxley Act against a company CEO that was not directly involved in the company’s fraud scheme. Maynard L. Jenkins, the former chief executive of CSK Auto Corporation was ordered to reimburse the company and shareholders over $4 million that he earned in bonuses and profits for sale of stock while CSK was committing accounting fraud, according to a statement by the SEC.

“The personal compensation received by CEOs while the companies they serve engage in wrongdoing can be clawed back,” said Robert Khuzami, Director of the SEC’s Division of Enforcement, in a statement released by the SEC. “The costs of such misconduct need not be borne by shareholders alone.”

“Jenkins was captain of the ship and profited during the time that CSK was misleading investors about the company’s financial health,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office, in the statement. ‘The law requires Jenkins to return those proceeds to CSK.”

Commentary: The final line of the SEC statement reads, “The SEC’s complaint does not allege that Jenkins engaged in the fraudulent conduct.” This is an important new precedent set by the SEC. Now, even if a CEO is unaware of accounting fraud occurring within his or her organization, he or she is still liable for it. The SEC was given the power to do this through claw back provisions of Sarbanes-Oxley, though this is the first time the provisions have been used.