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SEC charges Cheesecake Factory for misleading Covid-19 disclosures

The Securities and Exchange Commission has charged The Cheesecake Factory with misleading investors about how badly the restaurant chain was hit in the coronavirus pandemic’s early days.

The SEC announced on Friday it had settled charges with the company for not disclosing in filings earlier this year that it was losing $6m in cash a week and only had enough left to keep going for another four months. The Cheesecake Factory agreed to pay $125,000, without admitting any wrongdoing.

The charges are the first time regulators have taken action against a company for making misleading disclosures specifically related to the Covid-19 pandemic.

Jay Clayton, the SEC chair, said 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 did not respond to a request to comment.

According to the SEC’s announcement, the company, which operates 295 Cheesecake Factory and North Italia restaurants, made public filings on both March 23 and April 3 stating its restaurants were “operating sustainably” during the pandemic.

However, at the same time, internal documents showed the company was fast running out of cash and only had enough left for another 16 weeks of operations. The SEC said The Cheesecake Factory disclosed this information to potential private equity investors and lenders in the hope of borrowing more money, but not to its shareholders.

It also failed to disclose to shareholders in March that it had already informed its landlords that it would not pay rent in April due to the effects of Covid-19, the SEC said.

The Cheesecake Factory shares dropped as much as 61 per cent between January and their lows in April, although they have since regained those losses.

The company in April sold a $200m stake to Roark Capital, which owns several restaurant chains including Buffalo Wild Wings and Miller’s Ale House.

Additional reporting by Alistair Gray

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