The CEO of Silicon Valley software company Saba Software Inc. has agreed to repay $2.5 million under the Sarbanes-Oxley Act's clawback provision, in a case in which two company vice presidents were charged with running a scheme to falsely record hours worked by its consultants, the U.S. Securities and Exchange Commission said Wednesday.

Redwood Shores, California-based Saba will also pay $1.75 million to settle the case, the SEC said.

The SEC said in court papers that two former company vice presidents of Saba Software were involved in a plan in which they directed consultants in the company's Indian subsidiary to falsify time records by either recording time in advance of performance of work, or by failing to record time for hours worked in order to achieve their quarterly revenue and margin targets. The scheme was carried out between Oct. 4, 2007, and Jan. 6, 2012, according to the SEC.

Court papers said although the fraud occurred throughout the global professional services organization, Patrick Farrell and Sajeev Menon were the most senior individuals involved.

The company's CEO, Babak Yazdani, was required by the SEC to reimburse the company the $2.5 million in bonuses and stock profits he received while the accounting fraud was occurring, although he was not charged with misconduct, the SEC said in its statement.

Under the Sarbanes-Oxley Act's clawback provision, executives can be compelled to return to the company and its shareholders money earned while their company was misleading investors

“CEOs and CFOs can be deprived of bonuses and stock profits if there is misconduct on their watch that requires a restatement by their employer,” said Andrew J. Ceresney, director of the SEC's Division of Enforcement, in a statement. “We will not hesitate to pursue clawbacks in appropriate cases.”

Mr. Yazdani's attorney, John C. Dwyer, who is partner-in-charge at law firm Cooley L.L.P. in Palo Alto, California, said in an emailed statement that Sarbanes-Oxley “provides for the clawback of compensation from CEOs and CFOs where there is a restatement even where there is no indication that the CEO or CFO were involved in any misconduct. It is a draconian rule that the SEC seems intent on enforcing.”

Under terms of the settlement, in addition to the $2.5 million to be paid by Mr. Yazdani and the $1.75 million to be paid by Saba Software, Mr. Farrell will pay a total of $85,000 and Mr. Menon will pay a total $70,000 in disgorgement, prejudgment test and civil penalties.

Other attorneys in the case either could not be reached or had no comment.