The SEC is struggling to agree on guidelines governing when it should apply Section 304 of the Sarbanes-Oxley Act, which authorizes it to “clawback” pay to corporate executives that is based on inflated profits.

Bloomberg reports that in May 2010, the SEC's Division of Enforcement had been "working toward a policy that would have limited so-called claw-back actions to times when the executive is implicated in the violations," and not an unwitting beneficiary of the fraud. SEC Commissioner Luis Aguilar, however, reportedly objected that the policy would hinder the SEC’s ability to recoup pay based on inflated profits, and Enforcement Director Robert Khuzami has since indicated that he will stop using those preliminary guidelines.

The SEC has brought at least three clawback actions under Section 304 since July 2009, when it sued Maynard Jenkins, the former CEO of CSK Auto Corporation, with violations of that section in what it acknowledged to be “the first action seeking reimbursement under the SOX “clawback” provision (Section 304) from an individual who is not alleged to have otherwise violated the securities laws.” Jenkins is still fighting the SEC in court, and has argued that the "SEC’s nonsensical view is that Mr. Jenkins must pay (literally and figuratively) for that misconduct by others because he was the 'captain of the ship,' despite the fact that under its own view of the evidence, his crew was mutinous – deceiving him, and secretly circumventing the ship’s controls."

In June 2010, the SEC sued Diebold, Inc. for financial fraud, and also brought a case under Section 304 against its former CEO, Walden O’Dell, for "fail[ing] to reimburse Diebold for bonuses and other incentive-based or equity-based compensation he received from Diebold." The SEC did not allege that O'Dell engaged in the fraud, and he agreed to reimburse $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock under Section 304.

Most recently, the SEC brought an administrative proceeding on August 5, 2010 against Navistar International over restated financial results, and announced that under Section 304, the company's CEO and former CFO would return over $2.3 million in bonuses paid to them based on overstated earnings.

The Bloomberg article observes that the SEC notably did not attempt to use the clawback provision against Dell CEO Michael Dell in connection with the agency's recent accounting fraud case against the company.