The SEC and The Cheesecake Factory reached a $125,000 settlement after the brand was accused of misleading investors about the condition of the company early into the COVID pandemic.
In filings dated March 23 and April 3, The Cheesecake Factory said units were “operating sustainably,” but the SEC described the messaging as “materially false and misleading.” The brand omitted that it was losing roughly $6 million in cash per week and that it only had 16 weeks of cash remaining.
While The Cheesecake Factory didn’t publicize the information, it did disclose the numbers to investors and lenders during its pursuit of additional liquidity. In April, the chain announced a $200 million investment deal with Roark Capital, a private equity firm with a portfolio that includes Buffalo Wild Wings, Sonic Drive-In, Arby’s, Jimmy John’s, Cinnabon, Moe’s Southwestern Grill, Auntie Anne’s, Hardee’s, and Carl’s Jr. The Cheesecake Factory sold 200,000 shares of convertible preferred stock to Roark Capital affiliate RC Cake Holdings.
Additionally, in the March 23 filing, The Cheesecake Factory said it was undergoing actions to create financial flexibility, but did not reveal that it had already told landlords that it would not pay rent in April. The brand later noted the move in a March 27 filing.
“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,” said SEC Chairman Jay Clayton 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.”
The Cheesecake Factory said in a filing Friday that it “fully cooperated with the SEC” and that—without admitting to denying guilt—it agreed to the $125,000 penalty and a cease and desist from further violations.
“When public companies describe for investors the impact of COVID-19 on their business, they must speak accurately,” said Stephanie Avakian, director of the Division of Enforcement, in a 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.”
The Cheesecake Factory said that in October, units with indoor dining captured about 90 percent of prior year annualized sales volumes, with off-premises accounting for 40 percent. Including stores operating with patios and an off-premises model, sales were down 7 percent.