The Cheesecake Factory Charged with Making Fraudulent Representations about the Financial Impact of the COVID-19 Pandemic

The U.S. Securities and Exchange Commission (SEC) recently announced that it has settled charges against The Cheesecake Factory based on allegations that the company made fraudulent representations in its public disclosures. According to the SEC’s press release, “[t]he action is the SEC’s first charging [of] a public company for misleading investors about the financial effects of the pandemic.” Here, securities fraud attorney Jake Zamansky discusses the charges against The Cheesecake Factory and their broader implications for investors during the COVID-19 crisis.

SEC: The Cheesecake Factory Misled Investors By Claiming that it was “Operating Sustainably” During the Pandemic

The Cheesecake Factory’s settlement with the SEC arises out of the company’s alleged misrepresentation of its financial condition in March and April 2020. Specifically, the SEC took issue with the company’s statement that it was “operating sustainably” during the early months of the crisis. The SEC alleges that this statement was materially false and misleading to investors because:

“[T]he 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. . . . The Cheesecake Factory had [also] already informed its landlords that it would not pay rent in April due to the impacts that COVID-19 inflicted on its business.”

While the SEC and The Cheesecake Factory agreed to settle the allegations for a $125,000 penalty, the SEC’s press release goes on to state that the agency’s Enforcement Division intends to, “continue to scrutinize COVID-related disclosures to ensure that investors receive accurate, timely information.” In other words, while this was the SEC’s first enforcement action pertaining to a public company’s coronavirus-related financial disclosures, it likely will not be the last.

What Happens When a Company Misleads Investors about the Financial Impacts of the COVID-19 Crisis?

What does this case – and the SEC’s signal that more similar cases are likely to be forthcoming – mean for individual investors? Most importantly, it means that investors need to be vigilant about monitoring for signs of fraud, and they need to be prepared to take action when companies’ (or brokers’) fraudulent misrepresentations lead to investment losses. We recently discussed the risk of investors falling victim to other COVID-19 investment fraud scams as well, and we expect to continue to see similar issues arise as we head into 2021.

Importantly, while the SEC’s enforcement efforts help ensure that companies and brokers are not able to get away with misleading investors, investors must separately take legal action in order to recover their fraudulent investment losses. If you have questions and would like to speak with a securities fraud attorney, we encourage you to contact us for a free consultation.

Schedule a Free Consultation with a Securities Fraud Attorney

Do you need to speak with a securities fraud attorney about recovering fraudulent investment losses? If so, we encourage you to schedule a free consultation at Zamansky LLC. To find out if you are entitled to recover your losses, call us at 212-742-1414 or request an appointment online today.