The Cheesecake Factory Inc. has agreed to pay $125,000 in a settlement with the Securities and Exchange Commission over misleading disclosures about the impact of the COVID-19 pandemic on its business.
The SEC, in a statement Friday, said the settlement was the first result of charges against a public company linked to the financial effects of the pandemic and violations of federal securities law reporting provisions.
“Without admitting the findings in the order, The Cheesecake Factory agreed to pay a $125,000 penalty and to cease-and-desist from further violations of the charged provisions,” the SEC said in a statement. “In determining to accept the settlement, the SEC considered the cooperation afforded by The Cheesecake Factory.”
The SEC said Calabasas Hills, Calif.-based Cheesecake Factory, in federal filings on March 23 and April 3, stated that its restaurants were “operating sustainably” during the COVID-19 pandemic.
However, the SEC said 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 SEC order found that while the company did not disclose that internal information in its March 23 and April 3 filings, it did share it with potential private-equity investors or lenders in efforts to seek additional liquidity.
On April 20, The Cheesecake Factory closed on a $200 million investment from affiliates of private-equity firm Roark Capital.
David Overton, Cheesecake Factory CEO and chairman, in a statement at the time, said: “This transaction not only meaningfully enhances our liquidity position to navigate the near-term COVID-19 landscape and get our affected staff members back to work as soon as practicable but, also importantly, solidifies our ability to manage the business for the long-term for all of our stakeholders once we emerge on the other side of this crisis.”
The SEC settlement order Friday also found that while 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.
"When public companies describe for investors the impact of COVID-19 on their business, they must speak accurately," said Stephanie Avakian, director of the SEC’s enforcement division, in the statement.
“The enforcement division, including the Coronavirus Steering Committee, will continue to scrutinize COVID-related disclosures to ensure that investors receive accurate, timely information, while also giving appropriate credit for prompt and substantial cooperation in investigations,” Avakian said.
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