SEC Says Cheesecake Factory Misled Investors On COVID-19 Impact, Fines Restaurant Chain

Casual restaurant chain Cheesecake Factory Inc CAKE said it will pay a $125,000 fine to the U.S. Securities and Exchange Commission for making misleading statements in late March and early April, the SEC said in a Friday statement.

What Happened: Cheesecake Factory said on March 23 and April 3 that its restaurants were "operating sustainably" during the early days of the COVID-19 pandemic.

The filings were "materially false and misleading," as management's internal documents said otherwise, according to the SEC.

The restaurant chain was losing around $6 million in cash per week, and there was enough cash on the balance sheet to finance 16 weeks of operations. Cheesecake Factory didn't disclose this information to investors, although it did share this information with private equity investors or lenders as part of a capital raise initiative, the SEC said. 

The company also failed to disclose to investors that it informed landlords that the COVID-19 pandemic made it impossible to pay rent in April.

The Cheesecake Factory agreed to a $125,000 penalty without admitting the findings in the order, as the SEC found the restaurant chain violated reporting provisions of the federal securities laws.

"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," SEC Chairman Jay Clayton said in a statement. 

Why It's Important: The SEC's fine could be seen as a warning to other companies to ensure they convey the impact of the pandemic on their business.

"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," said Stephanie Avakian, the SEC's enforcement division director. 

CAKE Price Action: The stock was down 0.41% at $39.27 at last check Friday.