SEC Charges Stephen J. Easterbrook,
McDonald’s Former CEO for Misrepresentations About His Termination
January 9, 2023
Fast Food Company Charged for Public
Disclosure Violations
The Securities and Exchange Commission today charged Stephen J. Easterbrook,
former CEO of McDonald’s Corporation, with making false and misleading
statements to investors about the circumstances leading to his termination in
November 2019. McDonald’s also was charged for shortcomings in its public
disclosures related to Easterbrook’s separation agreement.
According to the SEC’s order, McDonald’s terminated Easterbrook for exercising
poor judgment and engaging in an inappropriate personal relationship with a
McDonald’s employee in violation of company policy. However, McDonald’s and
Easterbrook entered into a separation agreement that concluded his termination
was without cause, which allowed him to retain substantial equity compensation
that otherwise would have been forfeited. In making this conclusion, McDonald’s
exercised discretion that was not disclosed to investors.
Subsequently, in July 2020, McDonald’s discovered through an internal
investigation that Easterbrook had engaged in other undisclosed, improper
relationships with additional McDonald’s employees. According to the SEC’s
order, Easterbrook knew or was reckless in not knowing that his failure to
disclose these additional violations of company policy prior to his termination
would influence McDonald’s disclosures to investors related to his departure and
compensation.
"When corporate officers corrupt internal processes to manage their personal
reputations or line their own pockets, they breach their fundamental duties to
shareholders, who are entitled to transparency and fair dealing from
executives," said Gurbir S. Grewal, Director of the Division of Enforcement. "By
allegedly concealing the extent of his misconduct during the company’s internal
investigation, Easterbrook broke that trust with – and ultimately misled –
shareholders."
"Public issuers, like McDonalds’s, are required to disclose and explain all
material elements of their CEO’s compensation, including factors regarding any
separation agreements," said Mark Cave, Associate Director of the Division of
Enforcement. "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
SEC’s order finds that Easterbrook violated the anti-fraud provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Without
admitting or denying its findings, Easterbrook has consented to entry of the
SEC’s cease-and-desist order, which imposes a five-year officer and director bar
and a $400,000 civil penalty.
The SEC’s order also finds that McDonald’s violated Section 14(a) of the
Exchange Act and Exchange Act Rule 14a-3. Without admitting or denying its
findings, McDonald’s has consented to the SEC’s cease-and-desist order. The
Commission determined not to impose a financial penalty on McDonald’s in light
of the substantial cooperation it 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 SEC’s investigation was conducted by Bobby Gray and Fernando Campoamor,
under the supervision of Mr. Cave.
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