SEC Fines Steve Easterbrook, McDonald’s Ex-CEO

Three years after being fired as McDonald’s C.E.O. over what was eventually revealed as several inappropriate personal relationships with employees, Steve Easterbrook on Monday agreed to punishments from the S.E.C. over how his termination played out.

The agency’s accusations are a major milestone in a scandal that gripped corporate America, as the fast-food giant accused its former chief of misleading internal investigators. But they’re also the latest sign of how the S.E.C. is seeking to hold companies to account for what they do — and don’t — reveal to investors.

The S.E.C.’s case revolved around disclosure. The regulator said Easterbrook misled investors about the reasons for his termination. McDonald’s initially said he was terminated “without cause” for having what he said was a consensual relationship with an employee, and allowed him to leave with a separation package worth about $40 million. The company, however, later uncovered other relationships that Easterbrook hadn’t disclosed and sued him.

“By allegedly concealing the extent of his misconduct during the company’s internal investigation, Easterbrook broke that trust with — and ultimately misled — shareholders,” Gurbir Grewal, the director of the S.E.C.’s enforcement division, said in a statement.

Easterbrook will be barred from serving as a public company executive or director for five years, and will also pay a $400,000 fine. McDonald’s didn’t pay a penalty because it cooperated with the S.E.C. For its part, the company noted that it had already taken action against Easterbrook, including firing him and clawing back compensation.

The S.E.C.’s move drew criticism from within. The regulator’s two Republican commissioners said the agency appeared to question expanding its regulatory powers through enforcement. “The order casts McDonald’s, the victim of Mr. Easterbrook’s deception, as a securities law violator through a novel interpretation of the Commission’s expansive executive compensation disclosure requirements,” they said.

It’s the latest instance of criticism facing federal regulators over whether they’re overstepping their bounds by effectively writing new rules.

Microsoft reportedly weighs a $10 billion investment in the parent of ChatGPT. The tech giant is in talks to pour more money into OpenAI, along with other venture investors, according to Semafor. Microsoft had previously invested in OpenAI and is said to be planning to incorporate ChatGPT into products like its Bing search engine.

House Republicans eke out another legislative win. They narrowly approved an overhaul of the House’s operating rules, overcoming concerns by moderates about concessions made to the hard right to help Speaker Kevin McCarthy clinch his job. Republicans also voted to cut funding for the I.R.S., but the move is unlikely to pass the Senate.

Disney requires employees to work in the office four days a week. The edict by Bob Iger, the company’s newly returned C.E.O., is a relatively strict return-to-office policy compared with most in corporate America. It’s among the many big overhauls that Iger is likely to make at Disney, which may also include layoffs.

Another Sam Bankman-Fried associate reportedly meets with prosecutors. Nishad Singh, who previously led engineering at FTX, has held talks over a potential cooperation agreement with the Justice Department, according to Bloomberg. If he secures a deal, he would join Caroline Ellison and Gary Wang in working against Bankman-Fried.

The F.T.C.’s proposal to ban noncompete agreements is among the agency’s most sweeping moves in recent years, and it would have far-reaching consequences if it takes effect. But the move has also given business lobbyists an opportunity: a chance to challenge the agency’s power in court.

“We’ve been preparing for this moment, whether it was this issue or another,” Sean Heather, a senior vice president of international regulatory affairs and antitrust at the U.S. Chamber of Commerce, told DealBook. “It has nothing to do with the subject matter, but we don’t think they have the authority.”

A big question is whether Congress gave the F.T.C. this authority. Some skeptics — including Noah Phillips, a Republican former commissioner at the regulator — argue that lawmakers didn’t give the agency the power to write new rules.

But antitrust experts note that a 1973 federal court decision — National Petroleum Refiners Association v. F.T.C. — did grant rule-making power. That legal decision allowed it to require businesses to post octane ratings on gas pumps. The rule, still in place today, was able to stand because it addressed a public harm, and Congress didn’t explicitly limit the F.T.C.’s rule-making power.

But a lot has changed since then. Antitrust experts across the political spectrum say courts now don’t tend to find agency authority where it’s not explicitly granted. Last June, the Supreme Court’s conservative majority ruled in West Virginia v. E.P.A. that the environmental agency overstepped its authority by creating emissions regulations that touch on “major questions” with big economic consequences.

That “major questions doctrine” had once been considered a fringe conservative legal position. Now, however, it’s become a key part of litigation strategy for industrial groups looking to fight new regulatory rules.

Even supporters of the F.T.C.’s move are wary. The regulator will most likely modify its proposal based on public comments made over a 60-day period, so no final rule will be issued for some time. Even then, whatever the agency does must still pass legal muster.

“That might be an uphill battle, given the way judges — particularly conservative judges — think,” Jon Leibowitz, a Democratic former F.T.C. chair, told DealBook. “It’s not a Hail Mary, but it’s definitely a shot down the field.”


Moments ago, Bed Bath & Beyond reported earnings, and there’s one question on nearly everyone’s mind: Can the retailer avoid bankruptcy after raising its own doubts about its financial health?

The company is looking for new capital, and its share price surged Monday on investor speculation that it could be an acquisition target. Given all of that, it’s worth analyzing how the home goods retailer got into this position.

Bed Bath & Beyond isn’t a typical retailer debt story. Most recent retail bankruptcies came after a boom in private equity deals in the sector over the previous decade. The acquisitions of companies like Toys “R” Us, the shoe chain Payless and the luxury retailer Neiman Marcus saddled them with debt, on the assumption that they could rely on steady cash flow to kick-start growth. But those mountains of debt became a noose that left those retailers unable to compete against the rise of Amazon.

But Bed Bath & Beyond started taking on significant debt in 2014, selling $1.5 billion in bonds to buy back stock, which one analyst described at the time as a “seminal event.”. (It was still far less than what would be attached to a typical leveraged buyout, however.) Thanks to cheap credit and the company’s status as a retail giant, it got a good deal on that debt: Those bonds had maturation dates of 10, 20 and 30 years with interest rates of 3.8 percent, 4.9 percent and 5.2 percent, respectively, according to James Gellert, the C.E.O. of the financial analytics firm RapidRatings.

Those were terms Bed Bath & Beyond could “only dream of” at any other time, Gellert told DealBook.

Rising competition and disappointing sales have hammered the company. While the retailer once stood strongly on its own after its competitor Linens ’n Things collapsed, management struggled to figure out the right strategy to compete with Kohl’s, Amazon and Target. Its supply chain management was hit hard by a shopping shift brought on by the pandemic. As a result, delivery times got extended, and costs increased. As its earnings disappeared, cash went to plugging its losses and its leverage skyrocketed. Bed Bath & Beyond’s ratio of debt to earnings before interest, depreciation and amortization jumped to 6.19 in 2020 from 1.95 in 2019. “Ultimately, if you look at the debt level,” said Christina Boni, a senior vice president of Corporate Finance at Moody’s. “It’s more a function of the decline in profitability, more than anything else.”

Taking on more leverage hasn’t solved the problem. Bed Bath & Beyond tapped the debt market again in August, giving it a lifeline, and the hope that vendors would have enough confidence in the company to keep its shelves stocked during the holiday season. But it’s still struggled in recent months to procure the products customers wanted, and to sell enough of what it had.

The retailer, whose stock market capitalization has dropped to $190 million from a peak of $17 billion in 2013, could skip debt payments on Feb. 1. “Multiple paths are being explored, and we are determining our next steps thoroughly, and in a timely manner,” Susan Gove, the C.E.O. who launched a turnaround plan just months ago, said this morning.


A cost-of-living crisis, recession fears and a war raging on its eastern border: At first glance, Europe would hardly seem to be a go-to region for investors. But Wall Street increasingly sees an opportunity — particularly when compared with the U.S.

The latest economic data point to a shallow downturn. Investors got another spurt of upbeat news on Monday, with eurozone unemployment hitting a record low and factory output rising in Germany, the engine of the bloc’s economy.

Analysts are taking note. Last week, Citigroup raised its rating on European equities to overweight, saying valuations were relatively cheap. At the same time, they cut their 2023 outlook on U.S. stocks to underweight for the opposite reason: American shares are still too expensive.

Investors got the message months ago. European stocks have been outperforming American equities for several months. The benchmark Pan-European Stoxx 600 rose 10 percent last quarter and Germany’s DAX gained nearly 15 percent. At the same time, the S&P 500 climbed 7.5 percent.

Companies on both sides of the Atlantic are facing similar headwinds. Inflation remains at a multi-decade high, central banks are raising interest rates, recession seems likely, and that will probably torpedo corporate profits. Goldman Sachs predicts earnings per share for S&P 500 companies will flatline this year and Liberum Capital forecasts a volley of downgrades.

Europe may be over the worst and that’s enough for investors. This week, Goldman Sachs upgraded its forecast on eurozone G.D.P. to show meager growth for 2023, or a year-on-year gain of 0.6 percent versus an earlier prediction of a 0.1 percent slide. One big reason: energy prices have been falling across the bloc, with natural gas futures hitting a 12-month low as warmer winter temperatures have cooled off demand.

That’s lifting the sentiment of consumers and businesses. “After a modest winter recession, the eurozone economy will stabilize in spring and start to recover at an above-consensus pace thereafter,” Holger Schmieding, the chief economist at Berenberg, wrote in a recent note to clients.

Deals

Policy

  • The Office of Foreign Assets Controls is becoming increasingly adept at targeting and imposing sanctions on organizations involved in crypto-related criminal activity. (Fortune)

  • Environmental groups are suing the French dairy giant Danone over what they say is its failure to reduce its plastic footprint. (NYT)

  • Lawyers for President Biden found classified documents last fall at his former office at a Washington think tank, prompting the Justice Department to review the matter. (NYT)

Best of the rest

  • Jonathan Pruzan, the Morgan Stanley C.O.O. who was viewed as a contender to succeed the C.E.O. James Gorman, will retire. (WSJ)

  • “Britain’s Economic Health Is Withering With Sick Workers on the Sidelines.” (NYT)

  • Shares in Eisai are rallying for a second day after the Japanese drugmaker won F.D.A. approval on Friday for its drug to treat Alzheimer’s, Leqembi, co-developed with Biogen. (NHK)

  • A Chinese state-owned bank is offering people who deposit about $512,000 Western-made mRNA vaccine shots in a bid to lure wealthy clients. (FT)

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