SEC Settles Disclosure Allegations Against The Cheesecake Factory

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LOS ANGELES (CNS) - The Securities and Exchange Commission today announced that Calabasas-based Cheesecake Factory Inc. will pay a $125,000 penalty for making “false or misleading'' disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition.

The action is the SEC's first charging a public company for misleading investors about the financial effects of the pandemic.

The SEC's order finds that the Cheesecake Factory restaurant group violated reporting provisions of federal securities law. Without admitting the findings in the order, the company agreed to pay the penalty and to cease-and-desist from further violations of the charged provisions. In determining to accept the settlement, the SEC considered the cooperation afforded by the company.

A message sent to Cheesecake Factory's representatives seeking comment was not immediately answered.

As set forth in the SEC's order, in its SEC filings on March 23 and April 3, the restaurant group stated that its eateries were “operating sustainably'' during the COVID-19 pandemic. According to the order, the filings were false and misleading because the company's internal documents at the time showed that it was losing about $6 million in cash per week and projected that it had only 16 weeks of cash remaining.

The order finds that although the company did not disclose this internal information in its filings, the group did share this information with potential private equity investors or lenders in connection with an effort to seek additional liquidity. The order also finds that although the March 23 filing described actions the company had undertaken to preserve financial flexibility during the pandemic, it failed to disclose that Cheesecake Factory already had informed its landlords that it would not pay rent in April due to the impacts that COVID-19 inflicted on its business.

“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,'' SEC Chairman Jay Clayton said. “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.''

Cheesecake Factory had notified its landlords that it wouldn't pay rent on April 1 due to financial complications stemming from the coronavirus outbreak. A letter sent by Chief Executive David Overton to the restaurant group's landlords -- many of which are shopping mall operators -- was released publicly in March by Eater L.A.

The company has 294 restaurants in North America, 39 in California and six in the communities of Glendale, Sherman Oaks, Canoga Park, Thousand Oaks, Santa Clarita and Oxnard.

Its largest landlord is Indianapolis, Indiana-based real estate company Simon Property Group, which provides space for 41 Cheesecake Factory locations, according to the San Fernando Valley Business Journal.

“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 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.''

Photo: Getty Images


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