U.S. SEC charges McDonald’s and ex-CEO for breach of fundamental duties to shareholders.

The Securities and Exchange Commission today filed a complaint against Stephen J. Easterbrook, the former CEO of McDonald’s Corporation, alleging that he misled investors about the events that led to his dismissal in November 2019. Additionally, McDonald’s was criticized for making insufficient public disclosures about Easterbrook’s departure deal.

In accordance with the SEC’s order, Easterbrook was fired by McDonald’s for using poor judgment and engaging in an improper romantic connection with a corporate employee. Easterbrook was terminated without cause, but McDonald’s and Easterbrook signed into a separation agreement, which permitted him to keep a sizeable stock payout that would have otherwise been forfeited. McDonald’s used judgment that wasn’t revealed to investors in coming to this conclusion.

After that, in July 2020, McDonald’s learned through an internal investigation that Easterbrook had further illegal connections with additional McDonald’s employees that had not been revealed. The SEC’s ruling states that Easterbrook was irresponsible in his failure to realize that his failure to disclose these further company policy violations prior to his firing would affect McDonald’s disclosures to investors regarding his departure and pay.

According to Gurbir S. Grewal, Director of the Division of Enforcement, “corporate officers breach their fundamental duties to shareholders, who are entitled to transparency and fair dealing from executives when they falsify internal processes to manage their own reputations or fill their own pockets. ”Easterbrook allegedly betrayed that trust by failing to disclose the full nature of his misbehavior during the company’s internal investigation, and ultimately misled shareholders.

According to Mark Cave, associate director of the Division of Enforcement, “public issuers, like McDonald’s, are obligated to disclose and explain all material parts of their CEO’s compensation, including factors about any separation agreements.” The court’s ruling today states, “McDonald’s neglected to disclose that in combination with the signing of a separation agreement for more than $40 million the company, applied discretion to treat Easterbrook’s termination as being without a cause.

The Securities Exchange Act of 1934 and the Securities Act of 1933 also contain anti-fraud provisions, which the SEC’s ruling believes Easterbrook violated. Easterbrook has given its agreement for the SEC’s cease-and-desist order, which imposes a five-year officer and director prohibition and a $400,000 civil penalty, to be entered without admitting or disputing the SEC’s findings.

McDonald’s was in violation of Exchange Act Rule 14a-3 and Section 14(a) of the Exchange Act, according to the SEC’s decision. McDonald’s has agreed to the SEC’s cease-and-desist order without disputing or accepting its conclusions. In light of McDonald’s substantial cooperation with 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 corrective actions taken by McDonald’s, including seeking and ultimately recovering the compensation Easterbrook received under the separation agreement, the Commission decided not to impose a financial penalty on McDonald’s.

Under Mr. Cave’s direction, Bobby Gray and Fernando Campoamor carried out the SEC inquiry.