True or False questions

Michael Baker and Michael Gluk were the CEO and CFO of ArthroCare Corporation, a public company. Due to fraud committed by two senior vice presidents of ArthroCare, John Raffle and David Applegate, ArthroCare misstated its earnings in various SEC filings from 2006 to 2008. Pursuant to the clawback provisions of 302 and 304 of Sarbanes-Oxley Act and acting on behalf of ArthroCare, the SEC sought recovery from Baker and Gluk in the amount of cash bonuses, incentives, and equity-based compensation that Baker and Gluk earned during the affected periods. The SEC argued that Baker and Gluk were liable because they were the CEO and CFO at the time and thus signed the filings that required restatements. Baker and Gluk argued that they did not commit any conscious wrongdoing, did not themselves commit any violation of securities law, and should not be required to disgorge their compensation.

1. Under 302 and 304 of Sarbanes-Oxley, Baker and Gluk as CEO and CFO are required to be diligent to insure internal controls prevented misdeeds by the two senior vice presidents, and must disgorge their compensation if they knowingly committed any conscience wrongdoing or violate securities law.
2. The Sarbanes-Oxley Act creates a cause of action permitting the SEC to pursue a derivative lawsuit to disgorge the compensation of CEOs and CFOs for failure to maintain sufficient internal controls.
3. 302 and 304 of Sarbanes-Oxley impose fiduciary duties on CEOs and CFOs to be vigilant in insuring adequate internal controls and accuracy of financial statements.
4. Baker and Gluk are appointed to their respective posts as CEO and CFO by the Board of Directors and serve at their pleasure. The shareholders of Arthrocare appoint the directors by voting for them at the annual meeting or a special shareholder meeting called for that purpose.
5. The executive vice presidents who misstated ArthroCare Corporation earnings in various SEC filings from 2006 to 2008 are not liable for fraud under Rule 10b-5.