Hertz Global Holdings is demanding that former ceo Mark Frissora and former general counsel Jeffrey Zimmerman, along with other former senior managers, return at least $70 million of incentive compensation for their roles in an accounting scandal five years ago.
The company accused the former executives of pressuring employees to use fraudulent accounting techniques to inflate income and earnings, according to a March 25 lawsuit. The alleged misconduct led to a federal investigation and prompted Hertz to restate several years of financial results. Hertz’s policy allows it to claw back compensation from any employee whose gross negligence, fraud or willful misconduct contributed to a financial restatement, according to a regulatory filing. Clawbacks are rarely used, but are a powerful tool for companies seeking to punish executives for wrongdoing. They are made possible by the 2002 Sarbanes-Oxley Act, and have been used by firms including Wells Fargo & Co and JPMorgan Chase & Co to recoup hundreds of millions from ex-employees accused of malfeasance. Hertz filed the lawsuit after Mr Frissora, ex-CFO Elyse Douglas and Mr Zimmerman refused to return incentive compensation tied to the erroneous results. In a statement, Mr Frissora said “I strongly disagree with the allegations. I am proud of my record of integrity and transparency in business, and I am confident these claims will be shown to be untrue.” Attorneys for Mr Douglas and Mr Zimmerman have separately refused to comment further.
Hertz stock fell sharply in mid-2014 when the company disclosed it would have to restate results for the previous three years and cut its sales forecast. Mr Frissora resigned that August amid pressure from investors, and the restatements cost Hertz over $200 million along with payments of $16 million to settle claims with the US Securities and Exchange Commission. The SEC stated “improper methodologies were used to determine allowances and write-offs.” The stock has subsequently fallen 85 percent. In its suit for the $70 million in clawbacks Hertz accuses Mr Frissora, Mr Douglas and Mr Zimmerman of “gross negligence and misconduct.” An internal investigation concluded Mr Frissora leaned on subordinates to make “inappropriate accounting decisions’’ to hit financial targets, and states Mr Douglas and Mr Zimmerman failed to report Mr Frissora’s alleged pressure tactics. The company is also demanding they return severance pay.