Last week, the Securities and Exchange Commission (SEC) made good on its promises to enforce violations of its non-GAAP financial measure disclosure rules. MDC Partners agreed to pay a $1.5 million dollar penalty to settle the SEC’s charges relating to non-GAAP disclosures made by the company. The SEC alleged that MDC Partners had misused several non-GAAP measures in its earnings releases and periodic reporting and that MDC Partners had failed to disclose perks that it had provided to its former chief executive officer.

Non-GAAP Financial Measures

In May 2016, the SEC issued Compliance & Disclosure Interpretations (CDIs) which emphasized that, under Reg G and Reg S-K, if a reporting company presented non-GAAP financial measures, then the reporting company must present the “most directly comparable GAAP measures with equal or greater prominence” and must provide a reconciliation of the non-GAAP measure to the comparable GAAP measure. Essentially, a reporting company must present investors and analysts with information that would help them make an “apples to apples” comparison between GAAP and non-GAAP measures over different time periods. The SEC charged that MDC Partners failed to comply with such regulations on two fronts.

First, the SEC charged that the company’s earnings releases referenced EBITDA, EBITDA margin and free cash flow without giving greater prominence to comparable GAAP measures. For example, the CDIs state that non-GAAP measures should be presented in the same style as GAAP measures. MDC Partners, however, presented EBITDA guidance in large font, bold and italicized text in its earnings release headline before referencing any GAAP measures.

Second, the SEC charged that the company had presented a non-GAAP measure of “organic revenue growth” in its earnings releases, 10-Qs and 10-Ks, but included a reconciling item in the measure without notifying investors. This non-disclosure had the effect of overstating growth. Had the reconciling item been omitted from the measure, the company’s “organic revenue growth” would have been lower. The company could have averted this problem by including tabular reconciliations to GAAP revenue.

Failure to disclose perks

The SEC also alleged that MDC Partners failed to disclose that it had provided perks worth approximately $11.285 million dollars to Miles Nadal, the former CEO of the company. The company paid for “private aircraft usage, cosmetic surgery, yacht-and-sports-car-related expenses, jewelry, cash for tips and gratuities, medical expenses for Nadal, family members and others, charitable donations in Nadal’s name, pet care, vacation and personal travel expenses, and club memberships.” The perks were not reported on the company’s proxy statements, annual reports or securities offering documents. The non-disclosure caused the company to materially understate the compensation paid to Mr. Nadal.

As a result of the company’s lack of disclosure, the SEC charged that MDC Partners had violated internal control regulations, proxy rules, periodic reporting rules, issuer rules and non-GAAP financial rules.


  • The SEC is increasing its focus on non-GAAP financial measures and how those measures are presented in earnings releases and other period reports.
  • Public company issuers should take care to ensure that non-GAAP financial measures are presented with equal prominence as compared to GAAP financial measures and with full disclosure of how those measures are calculated.
  • Public company issuers should assess whether they are reporting all fringe benefits and perks that they provide to their officers and directors of the company.