Dive Brief:

• Vince McMahon, the founder of World Wrestling Entertainment and its chair and CEO until he resigned in 2022, signed settlements on his and the company’s behalf for two harassment claims against him without telling the company, the Securities and Exchange Commission says. That caused the company to overstate its earnings and file inaccurate reports.
• “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,” Thomas Smith, the SEC’s associate regional director in New York, said in a statement.
• In agreeing with the SEC’s Jan. 10 order, McMahon will pay a $400,000 fine and disgorge $1.3 million to the company for the portion of his earnings based on the revenue the company reported that was higher than it should have been for two periods. 

Dive Insight:

A close ally of President-elect Donald Trump, McMahon is married to Linda McMahon, who has been named to head the Department of Education in the upcoming administration. She served as head of the Small Business Administration in the first Trump administration. 

In 2019, McMahon entered into an agreement with a former contractor to settle claims that he sexually harassed her. The agreement obligated the company to pay $7.5 million over five years in exchange for the contractor not disclosing the claim and releasing McMahon and the company from liability. In 2022, he entered into a second agreement to pay a former company employee $3 million over five years in exchange for her not disclosing their relationship and releasing him and the company from liability.  

McMahon worked with an outside attorney on the agreements without telling the company board. He also didn’t tell the company’s in-house legal team, accounting team, auditor and audit committee.

Because the expenses weren't recorded, the company overstated its net income for the fourth quarter of 2018 by about 22% and its annual net income for that year by about 8%, along with its fourth quarter 2021 net income by 4.9% and its full year 2021 net income by 1.7%. 

“WWE’s accountants and auditor did not evaluate how to account for these transactions in WWE’s financial statements, and WWE’s legal department and Board could not evaluate the disclosure implications or potential risk to the Company of the Agreements,” the SEC says in its order. 

The company opened an investigation after it learned of the agreements in 2022 and reported its findings to the SEC a few months later. McMahon resigned after the investigation was announced. 

The company sought $64,497 in reimbursement from McMahon related to his incentive-based compensation but didn’t claw back profits he earned from his sale of stock based on the inaccurate filings. 

“The case is closed,” McMahon said in a statement he posted on X. "In the end, there was never anything more to this than minor accounting errors with regard to some personal payments that I made several years ago while I was CEO of WWE. I’m thrilled that I can now put all this behind me.”

In its order, in addition to the $400,000 fine, the SEC is requiring McMahon to pay back $1.3 million for his equity gains based on the inaccurate filings. 

McMahon violated half a dozen SEC laws and rules, the order says, including those prohibiting a person from deliberately falsifying amounts in financial records and causing the company to file inaccurate records and for circumventing company controls.