The Securities and Exchange Commission has settled charges against The Cheesecake Factory or making misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial conditions.
In its SEC filings on March 23, 2020, and April 3, 2020, The Cheesecake Factory stated that its restaurants were “operating sustainably” during the COVID-19 pandemic. The SEC says these filings were misleading because the company was losing approximately $6 million in cash per week and that it projected that it had only 16 weeks of cash remaining.
While The Cheesecake Factory was telling the markets that its restaurants were operating sustainably, it was asking its landlords for help. In its March 23 filing, the company described actions undertaken to preserve financial flexibility during the pandemic. However, it failed to disclose that it had already informed its landlords that it would not pay rent in April due to the impacts that COVID-19 inflicted on its business.
While The Cheesecake Factory did not disclose these losses in its March 23 and April 3 filings, it did share this information with potential private equity investors or lenders in connection with an effort to seek additional liquidity.
Upon a request for comment from Globest.com, The Cheesecake Factory’s public relations firm, Berk Communications, pointed to the company’s 8-K filed on December 4.
“The company fully cooperated with the SEC in connection with the settlement,” according to the 8-K. “Without admitting or denying the SEC’s allegations (other than with respect to the SEC’s jurisdiction), the company agreed to the entry of the order pursuant to which the company agreed to pay a penalty of $125,000 to the SEC and cease and desist from committing or causing any violations and any future violations of the reporting standards of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-11 thereunder.”
In determining to accept the settlement, the SEC considered the cooperation afforded by The Cheesecake Factory.
This settlement was the first time the SEC charged a public company for misleading investors about the pandemic’s economic effects.
“During the pandemic, many public companies have discharged their disclosure obligations in a commendable manner, working proactively to keep investors informed of the current and anticipated material impacts of COVID-19 on their operations and financial condition,” SEC Chairman Jay Clayton said in a statement.
“As our local and national response to the pandemic evolves, it is important that issuers continue their proactive, principles-based approach to disclosure, tailoring these disclosures to the firm and industry-specific effects of the pandemic on their business and operations. It is also important that issuers who make materially false or misleading statements regarding the pandemic’s impact on their business and operations be held accountable.”
