Company Settles Charges Over Undisclosed Perks and Improper Use of Non-GAAP Measures
The Securities and Exchange Commission today announced that New York-based marketing company MDC Partners has agreed to pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its then-CEO and separately violated non-GAAP financial measure disclosure rules.
The SEC’s order finds that MDC Partners disclosed an annual $500,000 perquisite allowance for its senior-most executive, but failed to disclose additional personal benefits the company paid on the CEO’s behalf such as private aircraft usage, club memberships, cosmetic surgery, yacht and sports car expenses, jewelry, charitable donations, pet care, and personal travel expenses. The CEO later resigned and returned $11.285 million worth of perks, personal expense reimbursements, and other items of value improperly received from 2009 to 2014.
“Compensation paid to high-ranking executives must be fully disclosed,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement. “MDC Partners failed to give its shareholders all of the relevant information about how its top executive was being compensated by the company.”
The SEC’s order also finds improper use of non-GAAP measures, which are allowed under SEC rules to convey information to investors that a company believes is relevant and useful in understanding performance. But non-GAAP measures must be accurate and must be reconciled to the appropriate GAAP measures so investors and analysts can compare them. According to the SEC’s order, MDC Partners presented a metric called “organic revenue growth” that represented the company’s growth in revenue excluding the effects of two reconciling items: acquisitions and foreign exchange impacts. But from the second quarter of 2012 to year end 2013, MDC Partners incorporated a third reconciling item into its calculation without informing investors of the change, which resulted in higher “organic revenue growth” results. MDC Partners also failed to give GAAP metrics equal or greater prominence to non-GAAP metrics in its earnings releases.
“The reason these rules are in place is so investors can compare non-GAAP financial measures to those consistently defined under GAAP requirements,” said G. Jeffrey Boujoukos, Director of the SEC’s Philadelphia Regional Office. “The lack of equal or greater prominence for GAAP measures is a practice that we will continue to focus upon.”
MDC Partners consented to the SEC’s cease-and-desist order without admitting or denying the findings.
The SEC’s continuing investigation is being conducted by Brendan P. McGlynn, Oreste P. McClung, Lisa M. Candera, and Brian R. Higgins of the Philadelphia office, and supervised by Mr. Boujoukos.