## Facts

- Basin Water, Inc., a public company selling water treatment systems, later became defunct.
- The SEC alleged that from Basin’s first quarter as a public company through fiscal year 2007, Basin’s financial results were overstated through improper revenue recognition not compliant with GAAP.
- The SEC alleged Basin reported millions of dollars in revenue that were not realized.
- Basin later restated its financial statements to correct the alleged misstatements.
- The SEC alleged CEO Peter L. Jensen and CFO Thomas C. Tekulve, Jr. signed and certified Basin’s Forms 10-K and 10-Q under Exchange Act Rule 13a-14.
- The SEC sought (1) liability under Rule 13a-14 for allegedly false certifications and (2) reimbursement (disgorgement) under Sarbanes-Oxley Act § 304 of certain incentive-based compensation and stock-sale profits.

## Issues

1. Whether Exchange Act Rule 13a-14 allows the SEC to sue CEOs and CFOs for certifying false or misleading statements, or only for failing to file certifications.
2. Whether Sarbanes-Oxley Act § 304 requires the SEC to prove the CEO’s or CFO’s personal misconduct caused the issuer’s restatement to obtain reimbursement.

## Decision

- The Ninth Circuit vacated the district court’s summary judgment for Jensen and Tekulve on the Rule 13a-14 and SOX § 304 claims and remanded.
- The court held Rule 13a-14 supports an SEC cause of action against CEOs and CFOs who certify false or misleading statements.
- The court held SOX § 304 reimbursement does not require proof that the CEO or CFO personally engaged in the misconduct that led to the issuer’s restatement; it is sufficient that the restatement was required “as a result of misconduct.”

## Legal Principles

- Exchange Act Rule 13a-14 imposes substantive obligations tied to the truthfulness of CEO/CFO certifications in periodic reports, not merely a requirement to file a certification.
- The SEC may pursue enforcement claims under Rule 13a-14 based on allegedly false or misleading certifications signed by a principal executive or financial officer.
- SOX § 304 permits reimbursement of specified compensation and stock-sale profits from a CEO/CFO when the issuer must restate due to material noncompliance “as a result of misconduct,” without a requirement that the officer personally committed that misconduct.
- Courts should not add a “personal misconduct” element to SOX § 304 where the statutory text does not require it.

## Conclusion

The Ninth Circuit allowed the SEC to proceed on claims that executives violated Rule 13a-14 by signing false certifications and to seek SOX § 304 reimbursement based on an issuer’s restatement resulting from misconduct, even absent proof that the CEO or CFO personally caused the misconduct.


SEC v. Jensen, 835 F.3d 1100 (9th Cir. 2016)