The former CEO of the WWE has settled charges over undisclosed multi-million payments to former members of staff.
The charges stem from Vince McMahon’s failure to disclose two settlement agreements, signed in 2019 and 2022, to WWE’s Board of Directors, legal team, financial reporting staff, and auditor.
This lack of disclosure circumvented WWE’s internal accounting controls and caused material misstatements in the company’s financial statements for 2018 and 2021.
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Key Details of the Settlements:
- 2019 Settlement: A $3 million agreement with a former employee to prevent disclosure of her relationship with McMahon and to release potential claims against WWE and McMahon.
- 2022 Settlement: A $7.5 million agreement with a former WWE independent contractor to prevent disclosure of allegations against McMahon and to release potential claims against WWE and McMahon.
These payments were not disclosed to WWE, leading to inaccurate financial reporting and a failure to evaluate their implications.
Financial Impact on WWE
The undisclosed payments had significant repercussions on WWE’s financial reporting:
- 2018 Financial Statements: Net income was overstated by approximately 8%.
- 2021 Financial Statements: Net income was overstated by approximately 1.7%.
These payments should have been recorded as related party transactions but were omitted, violating the Securities Exchange Act.
WWE addressed these issues by restating its financial statements in August 2022 after learning about the settlement agreements.
SEC Findings and Penalties
The SEC’s investigation concluded that McMahon:
- Knowingly circumvented WWE’s internal accounting controls.
- Made or caused false and misleading statements to WWE’s auditor by signing management representation letters that omitted the settlement agreements.
- Caused WWE to violate reporting and record-keeping provisions of the Exchange Act.
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Penalties Imposed on McMahon:
- Civil Penalty: $400,000.
- Reimbursement: $1,330,915.90 to WWE under Section 304(a) of the Sarbanes-Oxley Act.
- Cease-and-Desist Order: Prohibiting future violations of the Exchange Act.
Without admitting or denying the SEC’s findings, McMahon, 79, agreed to the terms of the settlement.
SEC’s Statement on Corporate Governance
Thomas P. Smith Jr., Associate Regional Director of the SEC’s New York Regional Office, said:
“Company executives cannot enter into material agreements on behalf of the company they serve and withhold that information from the company’s control functions and auditor.”
Behind the Investigation
The SEC’s investigation involved a team of professionals from its New York Regional Office, including Peter Pizzani, Mala Bartucci, Kenneth Gottlieb, Diego Brucculeri, Travis Hill, Liora Sukhatme, and Alison Conn. The Division of Economic and Risk Analysis also contributed, with input from Chyhe K. Becker and Tyler Remick.
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Lessons for Corporate Leaders
This case underscores the critical need for transparency and adherence to accounting controls.
For WWE, the fallout from these undisclosed agreements highlights the risks of noncompliance and the importance of proper governance practices. For executives, the SEC’s actions serve as a stark reminder of the consequences of circumventing corporate controls and misleading auditors.
