On 18 January 2017, the SEC announced that New York-based MDC Partners ("MDC") had agreed to pay $1.5 million to settle charges that it failed to disclose executive compensation and violated non-GAAP financial disclosure rules. Non-GAAP financial measures are financial measures that do not conform either to US generally accepted accounting principles ("GAAP") or international financial reporting standards, as applicable.
As discussed in previous issues of this memorandum, in May 2016, the SEC updated its C&DIs regarding the use of non-GAAP financial measures. Since then, the SEC has focused on compliance with non-GAAP disclosure rules, both in SEC comment letters, as well as in enforcement actions.
The MDC action related to the company's use of the non-GAAP measure "organic revenue growth", which was defined to exclude the effects of currency fluctuations and acquisitions, but which in fact also excluded the effect of a shift in revenue recognition policy for two subsidiaries.
This had the effect of boosting reported organic revenue growth in 2012 and 2013.
MDC also failed to disclose the relevant GAAP measures with equal or greater prominence to the non-GAAP measures, as required by Regulation G and Item 10 of Regulation S-K. For further detail, see the SEC's order at:
https://www.sec.gov/litigation/admin/2017/33-10283.pdf
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