Did the SEC confuse coverage with insurance? | | JD Supra

Today’s post is a continuation of the SEC’s recent discussion. passed A rule that requires stock exchanges to adopt listing standards and requires listed companies to develop and implement policies to recover incentive-based compensation erroneously awarded by current or former executive officers.

New Rule 10D-1(b)(1)(v) is short and to the point.

The issuer is prohibited from indemnifying any executive officer or former executive officer for loss of compensation wrongly awarded.

Nowhere in the regulations is it stated that issuers are prohibited from purchasing insurance. Indeed, the regulations nowhere mention insurance. Therefore, even if we conclude that the rules do not prohibit issuers from purchasing insurance to cover such recoveries, it may be permissible.

State corporate law distinguishes between the power of a corporation to indemnify an agent and the power of a corporation to purchase insurance on behalf of an agent. For example, Section 317(i) of the California Corporation Code, where relevant, states: or w resulting from the agent status itselfRegardless of whether the company has the authority to indemnify the agent against its liability under this section” (emphasis added). See also Section 145(g) of the Delaware General Corporation Law.

However, the SEC loads insurance into its rules. In its hiring release, the SEC said: insurance or indemnify an Executive Officer or former Executive Officer for the loss of compensation incorrectly awarded” (footnote omitted, emphasis added). The SEC says these things despite the fact that the rule itself does not say such things.

Put yourself in the shoes of a lawyer who only reads the rules. Are you insightful enough to understand what the rules don’t explicitly say? This highlights a long-standing problem with many of the SEC’s rules. What the rules say and what the hiring release says the rules.

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