The Securities and Exchange Commission charged Stephen J. Easterbrook, former CEO of McDonald’s Corporation (NYSE: MCD), on Monday with making false and misleading statements to investors regarding the events that led to his dismissal. McDonald’s was also accused with failing to make adequate public disclosures about Easterbrook’s separation arrangement.
Easterbrook was fired by the restaurant chain in 2019 for poor judgment and engaging in an inappropriate personal relationship with a McDonald’s employee in violation of company policy.
However, McDonald’s and Easterbrook reached a separation agreement in which it was determined that his termination was without cause, allowing him to keep substantial equity pay that would otherwise have been forfeited.
According to an analysis at the time by executive-pay consultancy Equilar, the severance package was valued at roughly £31 million (roughly $40 million) when issued in 2019, although the company’s shares has now grown by more than a third since then.
“In making this conclusion, McDonald’s exercised discretion that was not disclosed to investors,” the SEC said in its statement.
In August 2020, McDonald’s sued Easterbrook for the severance package, alleging new proof of other relationships and accused him of lying and fraud, adding that he should have been fired “with cause” and disqualified from exit compensation.
Easterbrook had sexual connections with at least three McDonald’s employees in the year before he was fired, according to the company, and even “approved an extraordinary stock grant, worth hundreds of thousands of dollars” for one of them. Easterbrook is accused in court records of removing evidence of these relationships from his phone and telling investigators at the time “deliberate falsehoods.”
“Easterbrook’s silence and lies — a clear breach of the duty of candor — were calculated to induce the Company to separate him on terms much more favorable to him than those the Company would have offered and agreed to had it known the full truth of his behavior,” the company says in the legal complaint.
The company added that their legal evidence “consisted of dozens of nude, partially nude, or sexually explicit photographs and videos of various women, including photographs of these company employees.”
When he was fired in 2019, Easterbrook assured the company that there had been no more similar incidents, and an examination of his cell phone appeared to back that up.
In December 2021, Easterbrook agreed to refund the money in the form of cash and equity rewards, paying the company more than £78 million in compensation.
Announcing the settlement, Easterbrook issued an apology for failing to “uphold McDonald’s values and fulfil certain of my responsibilities as a leader of the company.”
“I apologise to my former co-workers, the board and the company’s franchisees and suppliers for doing so,” said Easterbrook.
In its complaint filed on Monday, the SEC said “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.”
Easterbrook has agreed to the SEC’s cease-and-desist order, which imposes a five-year officer and director bar and a $400,000 civil penalty without admitting or rejecting its findings. McDonald’s has also consented to the commission’s cease-and-desist order without admitting or denying its findings.
The SEC, however, decided not to impose a financial penalty on McDonald’s, in view of the “substantial cooperation” provided to SEC personnel during the course of the inquiry.
McDonald’s last traded at $268.75 on the NYSE.
Information for this briefing was found via The New York Post, NPR, The Daily Mail, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.