A federal judge has ruled that shareholders cannot file derivative lawsuits under Section 304 of the Sarbanes-Oxley Act, according to Law.com. Section 304 allows for the disgorgement of profits and bonuses from top corporate executives in alleged accounting scandals.
The Website points out that the decision by U.S. District Judge Stewart Dalzell is the first that addresses whether Section 304 creates an implied private right of action. The judge made it clear that only the Securities and Exchange Commission can enforce the provision, according to the report.
In Sarbanes-Oxley, Dalzell found that Congress “explicitly created a private right of action in only one place, and that is in Section 306″ — a provision that prohibits corporate officers from buying or selling securities during a pension fund “blackout period,” according to the Law.com story.
Dalzell concluded that because lawmakers were explicit when they created a private right of action in Section 306 and did not address the subject when writing Section 304, “the natural inference is that Congress did not intend to create a private right of action in Section 304.”
The lawsuit was filed last year by Ronald Jeffrey Neer against Stonepath Group Inc. after the logistics company announced that it would restate its financial statements for prior periods. Dalzell said that the Section 304 claim was the only federal claim that was alleged in the lawsuit, so he ruled that the remaining state-law claims should be litigated in state court, noted the report.
“We believed from the beginning that this case had no foundation and we are extremely pleased to have won our motion to dismiss,” said Dennis L. Pelino, chairman of Stonepath, in a statement. However, company officials pointed out that the dismissal of the lawsuit does not affect a pending class-action lawsuit.