SEC charges Cheesecake Factory with $125K fine
The Securities and Exchange Commission has taken and settled its first action against The Cheesecake Factory for misleading investors about the financial impact of the COVID-19 pandemic on its business. Yahoo Finance’s Dan Roberts weighs in.
Video Transcript
MYLES UDLAND: Hard pivot here. We have to talk about the news out of The Cheesecake Factory earlier today. The SEC charging the company with misrepresenting their capital position, Dan, in releases to public markets while telling lenders how dire their cash position really was back in the depths of the pandemic. It's the first action we've seen from the SEC on any communications from public companies related to how things were going during the pandemic. One wonders if this is the beginning of something or if Jay Clayton just came across something quite obvious from The Cheesecake Factory here.
DAN ROBERTS: Yeah, and here's why this instance fascinates me, Myles. It's sort of the inverse of the other trend we have seen with restaurants. What large restaurant chains have gotten in trouble with the public for doing was overplaying how bad things were and qualifying for PPP loans. You know, Shake Shack, Ruth's Chris, Potbelly, all these big chains got PPP loans because technically according to the rules of the PPP program they did qualify, but the public was so angry. They said, look at these. These are publicly traded market cap-- you know, billion dollar market cap companies. They don't need a small-business relief loan, and so they gave those loans back.
This was Cheesecake doing the opposite, telling investors we're doing fine. Things are OK. Things were not OK. According to the SEC-- this was all in April-- Cheesecake Factory was losing $6 million in cash a week, and it told its landlords of its restaurants, which it owns more than 200 of in the US, that it wasn't going to be able to pay rent in April, that it had only 16 more weeks of cash on hand to survive.
So it's a small settlement. You know, it's only like $200,000, and Cheesecake Factory doesn't have to admit wrongdoing. But to me, it is symbolic of kind of the larger story here, which is that big, publicly traded restaurant chains were heavily scrutinized and experienced a lot of backlash for their financial actions and statements during the pandemic.
JULIE HYMAN: And it seems like investors not too worried about it in this particular case, maybe because the fine is relatively small. The shares are down less than 1% today, but we'll keep an eye on that and also on the trend, to your point.
Dan Roberts, good to see you. Thanks so much.
