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Financing

Cheesecake Factory settles SEC allegations of misleading investors about the pandemic's impact

The company neither affirmed nor denied the agency's allegations that it presented an inaccurate assessment early in the crisis.

The Cheesecake Factory has agreed to pay a $125,000 fine to the Securities and Exchange Commission(SEC) and refrain from publicly understating the financial impact of the pandemic on its operations, settling charges by the agency that the company misled investors with unduly rosy assessments back in March and April.

In agreeing to settle the complaint—the first instance of a public company being investigated for possibly misstating the impact of the coronavirus, according to the SEC—Cheesecake neither admitted nor denied the financial watchdog’s allegations. The agency noted that the resolution reflected the restaurant company’s cooperation with investigators. 

The SEC accused Cheesecake of misstating its true financial condition when it informed the investment community via press releases and security filings on March 23 and April 3 that its restaurants were “operating sustainably” despite a suspension of dine-in service by many states. According to the SEC, internal Cheesecake communications from that time showed the chain’s restaurants were actually losing $6 million per week and that the parent company had only enough cash on hand to sustain operations for 16 weeks.

That information was shared with private-equity investors and lenders in Cheesecake’s efforts to arrange an infusion of liquidity, the SEC said. In mid-April, Cheesecake announced that it had sold 200,000 shares of preferred stock for $200 million to Roark Capital, the private-equity parent of Inspire Brands and Focus Brands.

The SEC also noted that Cheesecake’s financial disclosures back in late March and early April contradicted its assertions to landlords that Cheesecake restaurants could not pay their April rents because of diminished sales. That inability to meet occupancy costs was not noted in the March 23 and April 3 SEC filings, the agency said.

"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. "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."

Restaurant Business and other media reported Cheesecake’s assertions on March 23 that delivery and takeout were sufficient to keep the 292-unit chain afloat while dining rooms were shut down in most states. The same press release also indicated that the pandemic had forced the company to shut 27 restaurants temporarily.

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