In its first case alleging that a company misled investors about the financial impact of the Covid-19 pandemic on its business, the U.S. Securities and Exchange Commission (SEC) is sanctioning Cheesecake Factory Inc.
The SEC settled charges with the company, which it accused of overstating its ability to weather the effects of the economic disruption caused by Covid-19.
The company settled the charges without admitting the findings in the SEC’s order. It agreed to pay a US$125,000 penalty and to cease-and-desist from further violations.
According to the SEC’s order, the charges stemmed from the company’s regulatory filings on March 23 and April 3, which stated that its restaurants were “operating sustainably” during the pandemic.
In fact, the SEC said that the company’s internal documents showed that it was losing approximately US$6 million in cash per week, and that it estimated that it had only 16 weeks of cash remaining.
As a result, the SEC alleged that the filings were materially false and misleading.
“During the pandemic, many public companies have discharged their disclosure obligations in a commendable manner, working proactively to keep investors informed of the current and anticipated material impacts of Covid-19 on their operations and financial condition,” said SEC chairman, Jay Clayton, in a release.
“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,” he said.
“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.”
Canadian securities regulators have issued guidance to issuers on ensuring that their continuous disclosure covers the impact of the pandemic on their operating performance, financial position, liquidity and future prospects.