The Cheesecake Factory has agreed to pay a fine of $125,000 to settle Securities and Exchange Commission charges of misleading investors about the toll the coronavirus pandemic has taken on its business.
In March and April, when many restaurants were instructed to close their doors in an effort to curb the spread of the novel coronavirus, the Cheesecake Factory assured investors through financial filings that its pickup and delivery business was allowing the chain to operate “sustainably.”
But internal documents painted a very different picture, according to the SEC. Those documents noted that the company was losing about $6 million in cash each week and that it only had about four months worth of cash left.
Also in March, the company told its landlords that it would be unable to pay April rent, according to the SEC. But it didn’t mention that information to investors in a March 23 filing about the actions it was taking to help protect the business. The inability to pay rent was made public later.
The discrepancies made the company’s March and April notices “materially false and misleading,” the SEC said in its order detailing the charges and settlement. This is the first time that the SEC has charged a public company with misleading investors over Covid-19’s impact on business.
In response to a CNN Business request for comment, a Cheesecake Factory spokesperson pointed to a Friday financial filing saying the company has “fully cooperated with the SEC” with regards to the settlement, “without admitting or denying the SEC’s allegations.”
Casual dining restaurants like the Cheesecake Factory, which have long pitched themselves to customers as a place to visit with friends and family, have been hit particularly hard during the pandemic.
Cheesecake Factory has seen its sales falter during the crisis. In the 13 weeks that ended on September 29, sales at Cheesecake Factory restaurants open at least a year fell about 23% compared to the same period the year before.