Cheesecake Factory settles with SEC over misleading COVID impact claims

The Cheesecake Factory this morning became the first public company charged by the SEC with misleading investors about the pandemic's financial impact on its business.

Driving the news: The SEC claims that the sugar slinger reported "materially false" information in its March 23 and April 3 filings by saying that it was "operating sustainably" by shifting to pickup and delivery.

• The restaurant chain's reality was a $6 million weekly burn and just four months of cash remaining.
• It did allegedly share its financial troubles with prospective private equity investors and lenders, as it sought additional liquidity. The company on April 20 announced a $200 million preferred convertible investment from Roark Capital.
• By the time of its SEC filings, Cheesecake Factory had already told landlords that it wouldn't pay its April rents.

In response, the Calabasas, California-based company agreed to pay a $125,000 penalty, without admitting guilt. That may be close to what it costs to order one of everything on Cheesecake Factory's massive menu.

Between the lines: This obviously reflects bad behavior by company execs, who tried to hide the deflated ball. But it also reflects the restaurant industry's dire condition, as COVID surges and Congress sputters on stimulus.

• Cheesecake Factory reported $127 million of profits last year. This year, it reported $88.5 million of net loss through the first three quarters.
• The company did manage to get a bailout from private equity, without receiving PPP monies, but that makes it a restaurant industry exception to the rule.