Dive Brief:

• The Cheesecake Factory has agreed to pay a $125,000 fine to settle a charge by the Securities and Exchange Commission that the company's COVID-19 disclosures misled investors, according to an SEC filing. The restaurant is the first public company to be charged over this issue, but has not admitted to the agency's allegations. 
• The SEC claims that the Cheesecake Factory's regulatory filings on March 23 and April 3, in which the company said its restaurants were "operating sustainably," were "materially false and misleading." The Cheesecake Factory was losing roughly $6 million in cash each week with only four months of cash remaining at this time, according to internal documents, but the casual chain didn't disclose this in regulatory filings. 
• The restaurant did disclose this financial information with potential investors and lenders as it pursued more liquidity amid the pandemic, however. The SEC also claims that the Cheesecake Factory's March 23 filing didn't disclose that the company told landlords it would not pay April rent. 

Dive Insight:

The pandemic has financially devastated scores of restaurant companies big and small since shut downs began in March, so the Cheesecake Factory's weekly cash burn of $6 million this spring doesn't come as a big surprise. 

But the chain's management of its financial obstacles — specifically its selective disclosure to prospective lenders and withholding from investors — can breed investor mistrust. Cheesecake Factory shares fell roughly 1% in premarket trading. The restaurant did not comment beyond referring to its 8K filing Friday. 

"When public companies describe for investors the impact of COVID-19 on their business, they must speak accurately," Stephanie Avakian, director of the SEC's division of enforcement, said in a press release.

In April, the SEC released a statement on the significance of accurate disclosures to ensure market integrity. The agency outlined several criteria on what company disclosures should include, from the company's response to the outbreak and detailed financial information regarding future operations. 

The Cheesecake Factory was one of the first major restaurant companies to announce that it would not be able to pay rent this spring, a moment that showed deep-pocketed legacy chains were struggling alongside independent eateries as restaurants contended with dining room closures and other capacity restrictions. In May, Starbucks COO Roz Brewer wrote a letter to landlords asking for a whole year's worth of rent breaks for corporate-owned stores beginning June 1 "to support modified operations and adjustments to lease terms and base rent structures." National retailers only paid about 58% of their billed rent in April, according to Datex Property Solutions data. 

​The Cheesecake Factory also furloughed more than 40,000 hourly employees early in the pandemic, though it hired most of those workers back in August. The company received $200 million in a convertible preferred investment from Roark Capital in April, around the time of the filings the SEC criticizes, to improve its liquidity position.