MDC to pay $1.5-million in settlement over ex-CEO Miles Nadal’s expenses

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MDC Partners Inc. has agreed to pay $1.5-million (U.S.) to settle charges it failed to disclose more than $11-million in personal expenses it paid for former CEO Miles Nadal, including perks such as cosmetic surgery, pet care and "yacht-and-sports-car-related expenses."

The U.S. Securities and Exchange Commission said Wednesday its voluntary cash settlement with MDC covers two unrelated matters: the non-disclosure of expense payments, and allegations that the company violated financial disclosure rules in its prominent and inconsistent use of non-GAAP financial measures in its earnings reports.

Mr. Nadal founded the advertising and communications company in 1986 and led MDC until his resignation in July, 2015, during the SEC's investigation. He pledged to repay $11.3-million in personal expenses covered by the company between 2009 and 2014 and also agreed to repay $10.6-million in cash bonus awards he received during his time as CEO.

The SEC order released Wednesday found MDC reported some expenses covered for Mr. Nadal in its shareholder proxy circulars, including an annual $500,000 perquisite allowance, but did not disclose an average of approximately $1.88-million in other expenses each year between 2009 and 2014. The commission said MDC understated the perquisites and personal benefits portion of Mr. Nadal's pay by an average of almost 300 per cent annually.

SEC acting enforcement director Stephanie Avakian said MDC failed to give shareholders all relevant information about its CEO compensation.

"Compensation paid to high-ranking executives must be fully disclosed," she said in a statement.

The undisclosed expenses included costs for private aircraft, cosmetic surgery, sports cars, jewellery, pet care, travel, and charitable donations in Mr. Nadal's name, the SEC order said.

The order does not detail the dollar value of each type of expense or explain which charitable donations were paid by the company. Mr. Nadal has made numerous high-profile donations to charitable causes, particularly in Toronto.

The SEC also said MDC did not have proper internal controls, noting, for example, that it repaid thousands of dollars a month to Mr. Nadal for "tips and gratuities" based solely on a line item he added to his monthly expense submissions.

MDC agreed to the settlement without admitting or denying the allegations. Chief executive officer Scott Kauffman, who succeeded Mr. Nadal, said in a statement the company is "extremely pleased" to have concluded the SEC investigation, which was launched in 2014.

"I'm particularly gratified that the SEC formally acknowledged MDC's high level of co-operation, our in-depth internal investigation conducted by the company's special committee with outside counsel, and our self-initiated remedial measures," he said.

The SEC order also found MDC improperly reported non-GAAP financial measures, which are metrics companies are allowed to use in addition to standardized generally accepted accounting principles (GAAP). While GAAP measures must be used in audited financial statements, companies can use non-GAAP measures in other reports, such as press releases.

The SEC said MDC reported a metric called "organic revenue growth" that measured revenue growth excluding two factors. But in 2012 and 2013, the SEC said MDC excluded a third factor from its calculation without informing investors about the change, which resulted in higher reported organic revenue growth.

The regulator also said MDC failed to give GAAP metrics equal or greater prominence than non-GAAP metrics in its earnings releases, in violation of SEC regulations.

Jeffrey Boujoukos, director of the SEC's Philadelphia regional office, said the commission will continue to focus on companies that do not give equal or greater prominence to GAAP measures in their reporting.