Another Accusation by SEC- Stephen J. Easterbrook of McDonald Charged
The Securities and Exchange Commission filed charges against former McDonald’s Corporation CEO Stephen J. Easterbrook today, accusing him of making false and misleading statements to investors about the circumstances that led to his termination in November 2019. McDonald’s was also accused of failing to adequately disclose relevant information to the public regarding the separation agreement with Easterbrook.
According to the order issued by the SEC, Easterbrook was fired from his position at McDonald’s because he exhibited poor judgment and engaged in an inappropriate personal relationship with a McDonald’s employee, both of which were in violation of McDonald’s policy.
However, McDonald’s and Easterbrook came to an agreement that led to the conclusion that his dismissal was without cause. As a result, Easterbrook was able to keep a significant portion of the equity compensation that he would have been required to forfeit under other circumstances. McDonald’s used discretion in reaching this conclusion, which was not disclosed to the investors.
After that, in July of 2020, McDonald’s found out through an internal investigation that Easterbrook had engaged in other improper relationships with additional McDonald’s employees. These relationships had not been disclosed. Easterbrook was fired.
According to the order issued by the SEC, Easterbrook either knew or acted recklessly in not knowing that his failure to disclose additional violations of company policy prior to his termination would influence McDonald’s disclosures to investors related to his departure and compensation. This was the case even if he did not know that this would be the case.
“When corporate officers corrupt internal processes to manage their personal reputations or line their own pockets, they breach their fundamental duties to shareholders,” said Gurbir S. Grewal, Director of the Division of Enforcement. “Shareholders are entitled to transparency and fair dealing from executives.”
“When corporate officers corrupt internal processes to manage their personal reputations or to line their own pockets, they breach their fundamental duties to shareholders.” Easterbrook “broke that trust with shareholders and ultimately misled them by concealing the extent of his misconduct while the company was conducting its internal investigation,” as stated in the article.
Mark Cave, Associate Director of the Division of Enforcement, stated that public issuers such as McDonald’s are required to disclose and explain all material elements of their CEO’s compensation, including factors regarding any separation agreements.
Public issuers are required to disclose and explain all material elements of their CEO’s compensation,” “Today’s order finds that McDonald’s failed to disclose that the company exercised discretion in treating Easterbrook’s termination as without cause in conjunction with the execution of a separation agreement valued at more than $40 million,” the order stated.
“Today’s order finds that McDonald’s failed to disclose that the company exercised discretion in treating Easterbrook’s termination as without cause.”
According to the order issued by the SEC, Easterbrook engaged in fraudulent activity in violation of the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Easterbrook has consented to the entry of the SEC’s cease-and-desist order without admitting or denying the findings of the investigation. This order imposes a five-year officer and director bar as well as a $400,000 civil penalty on Easterbrook.
In addition, the order from the SEC finds that McDonald’s violated Section 14a(a) of the Exchange Act as well as Rule 14a-3 of the Exchange Act. McDonald’s has complied with the SEC’s cease-and-desist order without either admitting or denying the findings of the investigation.
In light of the substantial cooperation McDonald’s provided to SEC staff during the course of its investigation, including voluntarily providing information not otherwise required to be produced in response to the staff’s requests, as well as the remedial measures undertaken by McDonald’s, including seeking and ultimately recovering the compensation Easterbrook received pursuant to the separation agreement, the Commission made the decision not to impose a financial penalty on McDonald’s.
This decision was made in light of the fact that McDonald’s voluntarily provided information not otherwise required to be produced in
Bobby Gray and Fernando Campoamor, working under Mr. Cave’s direction, were the ones who carried out the investigation on behalf of the SEC.
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