HOUSTON — The Cheesecake Factory Inc. is the first public company to be charged with misleading investors about the financial effects of the COVID-19 pandemic.
The Securities and Exchange Commission announced that it settled charges against The Cheesecake Factory. Without admitting the findings in the order, the company has agreed to pay a $125,000 penalty and to cease-and-desist from further violations of the charged provisions.
The Cheesecake Factory has two locations in the Houston area.
According to the SEC's order, The Cheesecake Factory stated that its restaurants were "operating sustainably" during the pandemic in its SEC filings on March 23 and April 3.
According to the order, the filings were materially false and misleading because the company's internal documents at the time showed that the company was losing approximately $6 million in cash per week and that it projected that it had only 16 weeks of cash remaining.
The order finds that although the company did not disclose this internal information in its March 23 and April 3 filings, the company did share this information with potential private equity investors or lenders in connection with an effort to seek additional liquidity.
The order also finds that, although the March 23 filing described actions the company had undertaken to preserve financial flexibility during the pandemic, it failed to disclose that The Cheesecake Factory had already informed its landlords that it would not pay rent in April due to the impacts that COVID-19 inflicted on its business.
The SEC's order finds that The Cheesecake Factory violated reporting provisions of the federal securities laws.
In determining to accept the settlement of the charges, the SEC considered the cooperation afforded by The Cheesecake Factory.
“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,” SEC Chairman Jay Clayton said. “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."
