The Cheesecake Factory was served something off the menu by the Feds on December 4: a whopping $125,000 fine. The California-based company with 300 national restaurants in the US and Canada allegedly was caught hiding cash that the dining chain was losing in the early days of the COVID-19 Pandemic.
In a settlement on Friday, the popular company famous for its cheesecake and causal dining venues agreed to pay the Securities and Exchange Commission (SEC) the $125,000 fine in the historic settlement. The SEC has never before filed charges against a publicly-traded entity for hiding from investors and the public financial losses due to the pandemic.
The Cheesecake Factory agreed to pay the $125,000 fine to the Feds but did not admit any form of wronging. At the same time, they did not deny any of the SEC allegations.
In a statement released by the SEC, the director of the SEC’s enforcement division Stephanie Avakian said, “When public companies describe for investors the impact of COVID-19 on their business, they must speak accurately.”
In March, the pandemic wreaked chaos among most restaurants, and The Cheesecake Factory was no exception to the nationwide crisis among restaurants and bars. The company furloughed 90 percent of its staff, impacting about 41,000 employees.
Yet despite the massive furloughs and numerous stay-at-home orders in multiple states where the chain operates, The Cheesecake Factory issued its regulatory filings in both late March and early April as “operating sustainably.”
The SEC investigated and discovered the company was losing about $6 million per week at the time. Their books revealed they had only about four months left in cash, according to the SEC.
The SEC noted, “According to the order, the filings were materially false and misleading because the company's internal documents at the time showed that the company was losing approximately $6 million in cash per week and that it projected that it had only 16 weeks of cash remaining.”
At issue in the Feds’ fine is that The Cheesecake Factory, as a publicly-traded company, did not disclose these financial realities to investors. The SEC alleges the company did, however, share the truth about its deep losses and work with lenders and other investors in order to create more liquidity.
The SEC also noted The Cheesecake Factory as far back as its March 23 regulatory filing had already informed its landlord it wouldn’t pay the April rent for any of its restaurants, contrary to its more positive filing with the SEC.
As part of the SEC settlement, the company must now “cease and desist” from all and any violations when reporting standards to the SEC.
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