The SEC has just announced settled charges against The Cheesecake Factory Incorporated for making misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition. The SEC disagreed with statements The Cheesecake Factory made in its filings back in March and April that the restaurants were “operating sustainably” during the pandemic, finding that the statements were materially false and misleading due to contrary internal documents showing cash reserves.  These statements were disclosed to potential funding sources and the company had very publicly told its landlords that it would not be paying rent.

This is a good reminder that in May of 2020, the SEC formed it’s Corona Virus Steering Committee underscoring the SEC’s enforcement priorities and its commitment to transparency and protection of the public. During times of volatility in the market, the SEC sees increased opportunities for market manipulation and an increased need for enforcement. The order against The Cheesecake Factory demonstrates that the Corona Virus Steering Committee has teeth. The fine in this matter was $125,000.00 and Stephanie Avakian, director of the SEC’s enforcement division reminded that “When public companies describe for investors the impact of COVID-19 on their business, they must speak accurately.”

Companies can and should re-visit recent disclosures to make sure that they were transparent regarding their financial condition or even consider filing an 8K to make sure that upcoming disclosures adequately explain the current financial conditions.