The Securities and Exchange Commission has taken and settled its first action against a public company for misleading investors about the financial impact of the COVID-19 pandemic on its business.
The company is The Cheesecake Factory (CAKE), which has more than 200 locations in the U.S. Shares were lower in early trading on Friday.
The SEC says that in filings on March 23 and April 3, Cheesecake Factory said its restaurants were “operating sustainably” amid the pandemic, when in fact the company was losing $6 million in cash per week and had internally projected that it had just 16 weeks of cash remaining, and had already told landlords it could not pay its rent in April due to the hit from the pandemic.
The SEC further charges that Cheesecake Factory shared this with potential private equity investors in its efforts to seek capital, but did not share it with shareholders. (On Apr. 20, Cheesecake Factory announced $200 million in new funding from Roark Capital.)
“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 enforcement division, said in a statement. The SEC says it will “continue to scrutinize COVID-related disclosures to ensure that investors receive accurate, timely information.”
As part of the settlement, Cheesecake Factory agreed to a $125,000 fine but did not have to admit to the SEC’s findings. (Cheesecake Factory declined to comment for this story beyond its 8-K filing on Friday that confirmed the SEC settlement.)
In a broader context, the actions and statements of publicly traded chain restaurants during the pandemic have been under harsh public scrutiny ever since a slew of big names like Shake Shack, Ruth’s Chris Steak House, and Potbelly Sandwich Shop all qualified for PPP (Paycheck Protection Program) loans from the government during the first round of relief, when so many smaller businesses were shut out.
While those chains legitimately qualified under the PPP language, which contained a carveout for restaurants and hotels regardless of their number of employees, the backlash grew loud enough that most of them, beginning with Shake Shack, gave their PPP money back in an effort to fix the bad optics.
Meanwhile, hotels, airlines, and smaller independent restaurants all desperately await another round of government stimulus as the pandemic drags on.
Daniel Roberts is an editor-at-large at Yahoo Finance and has closely covered the impact of the pandemic on restaurants. Follow him on Twitter at @readDanwrite.