## Facts

- Stephen J. Easterbrook served as McDonald’s President and CEO and as a director from 2015 to October 2019.
- In October 2019, McDonald’s learned Easterbrook had a consensual relationship with an employee, retained outside counsel, and conducted an internal investigation requiring truthful cooperation.
- In an interview, Easterbrook disclosed one relationship but denied and omitted other employee relationships and other relevant information.
- McDonald’s terminated Easterbrook “without cause,” allowing him to keep substantial unvested equity that would have been forfeited if terminated “for cause.”
- McDonald’s publicly disclosed that Easterbrook was leaving for “poor judgment” involving a consensual employee relationship and that he was terminated without cause.
- McDonald’s later proxy materials described Easterbrook’s separation compensation but did not disclose that the board exercised discretion to treat the termination as “without cause” despite a policy violation.
- In 2020, a second investigation found Easterbrook had additional undisclosed sexual relationships with employees and used company email to exchange explicit photographs.
- McDonald’s sued to recover compensation; the dispute settled in 2021 with Easterbrook forfeiting equity and repaying approximately $105 million (including certain fees).
- The SEC instituted an administrative cease-and-desist proceeding and issued a settled order; respondents neither admitted nor denied the findings (except jurisdiction and specified matters).

## Issues

1. Whether Easterbrook’s nondisclosure and omissions during the internal investigation constituted a deceptive scheme or material misstatements/omissions in connection with securities, violating Exchange Act § 10(b) and Rule 10b-5 and Securities Act § 17(a).
2. Whether McDonald’s proxy materials omitted material executive-compensation information by failing to disclose the board’s discretionary decision to classify Easterbrook’s termination as “without cause,” in violation of Exchange Act § 14(a) and Rule 14a-3.
3. Whether Item 402 of Regulation S-K required disclosure of discretionary decisions materially affecting retention or forfeiture of executive equity awards in a separation arrangement.

## Decision

- The SEC found Easterbrook violated Securities Act § 17(a)(1)–(3) and Exchange Act § 10(b) and Rule 10b-5(a)–(c).
- The SEC found McDonald’s violated Exchange Act § 14(a) and Rule 14a-3 based on deficient proxy disclosures; McDonald’s was not charged with antifraud violations.
- Easterbrook was ordered to cease and desist, pay a $400,000 civil penalty, and accept a five-year officer-and-director bar.
- McDonald’s was ordered to cease and desist; no civil penalty was imposed, citing cooperation and recovery of over $100 million from Easterbrook.

## Legal Principles

- An executive’s knowing or reckless omission of material facts during an internal investigation, where the executive understands the issuer will rely on the information for public disclosures and compensation decisions, can constitute a deceptive scheme and fraud under Exchange Act § 10(b)/Rule 10b-5 and Securities Act § 17(a).
- Proxy solicitation rules require complete and accurate disclosure of material information necessary for shareholders to evaluate executive compensation matters presented for a vote; omissions can violate Exchange Act § 14(a) and Rule 14a-3.
- Under Item 402 of Regulation S-K, issuers must disclose all material elements of named executive officer compensation, including material terms of separation arrangements and discretionary board decisions that determine whether significant equity-based compensation is retained or forfeited.
- Post-misconduct remediation and cooperation, including prompt investigation and substantial clawbacks, may affect the SEC’s choice of remedies, including whether to seek a corporate civil penalty.

## Conclusion

The SEC concluded that Easterbrook’s concealed misconduct and omissions corrupted McDonald’s decision-making and related disclosures, supporting antifraud findings against him, and that McDonald’s proxy materials were deficient for failing to disclose the board’s discretionary “without cause” classification that allowed Easterbrook to retain significant equity compensation.


In re Stephen J. Easterbrook & McDonald’s Corp., Securities Act Release No. 11144, Exchange Act Release No. 96610 (S.E.C. Jan. 9, 2023)