SEC Going After CAKE; Will Others Be Next?

Posted on December 7, 2020 by Aaron Warwick

On Friday the Securities and Exchange Commission (SEC) announced settled charges for $125,000 against The Cheesecake Factory (CAKE) for making misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition. The action is the SEC’s first charging a public company for misleading investors about the financial effects of the pandemic. Perhaps other companies will be next?

The charges stem from CAKE’s SEC filings on March 23 and April 3, 2020, in which CAKE stated its restaurants were “operating sustainably” during the COVID-19 pandemic. The SEC determined the filings were materially false and misleading because internal documents showed that the company was losing ~$6 million in cash per week and projected only 16 weeks of cash remaining. Further, CAKE failed to disclose notices to its landlords that it would not pay rent in April due to the impacts of the pandemic. CAKE did, however, share this information with potential private equity investors or lenders in connection with seeking additional liquidity.

On Sunday, the law firm Bronstein, Gewirtz & Grossman, LLC announced it is investigating potential claims on behalf of CAKE investors related to these materially false and misleading documents. Investors in CAKE during the times cited by the SEC can assist in the investigation by visiting the law firm’s website set up for this purpose. Interestingly, CAKE shares have more than doubled since the March 23 and April 3, 2020 dates cited by the SEC.

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