Risk & Compliance

Cheesecake Factory Fined Over COVID Disclosures

In the first enforcement action of its kind, the SEC says the company falsely claimed its restaurants were "operating sustainably" during the pande...
Matthew HellerDecember 4, 2020

In the first enforcement action of its kind, the Cheesecake Factory has been charged with misleading investors about the impact of the coronavirus pandemic on its business.

According to the U.S. Securities and Exchange Commission, the restaurant chain’s regulatory filings on March 23 and April 2 were materially false and misleading because they stated it was “operating sustainably” during the pandemic when, in fact, it was losing about $6 million a week.

It is the first time the SEC has charged a public company over misleading disclosures related to the pandemic. To settle the charges, Cheesecake Factory agreed to pay a $125,000 fine.

“When public companies describe for investors the impact of COVID-19 on their business, they must speak accurately,” Stephanie Avakian, director of the SEC’s Division of Enforcement, said in a news release.

The enforcement division, she added, “will continue to scrutinize COVID-related disclosures to ensure that investors receive accurate, timely information.”

As Restaurant Dive reports, Cheesecake Factory “was one of the first major restaurant companies to announce that it would not be able to pay rent this spring, a moment that showed deep-pocketed legacy chains were struggling alongside independent eateries as restaurants contended with dining room closures and other capacity restrictions.”

The company also furloughed more than 40,000 hourly employees early in the pandemic.

But in its March 23 filing, Cheesecake Factory attached a press release that said an “off-premise” model of takeout and delivery service was “enabling the company’s restaurants to operate sustainably at present.”

The release attached to the April 3 disclosure also claimed the restaurants were “operating sustainably” under the off-premise model.

The filings did not disclose, among other things, that the company “was losing approximately $6 million in cash per week” and that it had only approximately 16 weeks of cash remaining, the SEC said in an administrative order.

The commission noted that Cheesecake Factory did disclose its cash position in presentations to lenders and potential private equity investors. On April 20, it announced it had closed on a $200 million investment from Roark Capital.

(Photo by John Nacion/SOPA Images/LightRocket via Getty Images)