The Cheesecake Factory settled charges Friday that it allegedly concealed how badly the pandemic was affecting its business, making it the first-ever public company to be charged with coronavirus-related securities reporting violations.
In SEC filings on March 23 and April 3, the company said its restaurants were “operating sustainably” during the pandemic.
In reality, internal documents show the company was losing about $6 million in cash per week and projected that it had only 16 weeks of cash remaining, according to the SEC, which violated disclosure provisions requiring that companies to make accurate statements.
While Cheesecake Factory didn’t disclose its cash problem on SEC documents, it did tell potential private equity investors and lenders about it, and the company eventually received a $200 million investment from Roark Capital later in April.
The SEC also says the restaurant chain failed to disclose in its March 23 filing it already informed its landlords it would not pay April rent due to the pandemic.
The restaurant chain agreed to a $125,000 fine over allegations it made “misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition,” but did not admit wrongdoing.
A spokesperson for the company declined to comment, but instead pointed to a Friday SEC filing saying the Cheesecake Factory “fully cooperated with the SEC in connection with the settlement.”
”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,” said SEC Chair Jay Clayton in a statement. “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.”
The restaurant industry has been decimated by the pandemic, and while a few national chains are faring well with delivery, the industry as a whole hasn’t received any federal assistance beyond PPP loans earlier this year. From July to the end of September this year, the Cheesecake Factory saw a 11.7% decline in revenues and a $28.3 million net loss.