Federal authorities have charged Fat Brands and its chair, Andy Wiederhorn, with orchestrating a fraudulent scheme involving $47 million in sham loans. This news led to a significant drop in the company’s stock, which closed down 27% on Friday and left the company with a market value of $92 million.
Federal Indictment and SEC Charges
Fat Brands, Wiederhorn, and several others faced a criminal indictment by a federal grand jury in Los Angeles. The charges include wire fraud, tax evasion, and other counts related to the alleged fraudulent activities. The U.S. Securities and Exchange Commission (SEC) also has filed a civil complaint against the company and Wiederhorn for violating the same scheme.
“These charges are unprecedented, unwarranted, unsubstantiated, and unjust,” said Brian Hennigan, counsel for Fat Brands. “They are based on conduct that ended over three years ago and ignore the company’s cooperation with the investigation.”
Wiederhorn’s Alleged Misconduct
According to the indictment, Andy Wiederhorn, 58, as the chief executive of Fat Brands, directed the company to loan its funds to him without any intention of repayment. The SEC claims he used this money for personal expenses, including private jets, luxury vacations, and nearly $700,000 in shopping and jewelry.
“We look forward to making clear in court that this is an unfortunate example of government overreach — and a case with no victims, no losses, and no crimes,” stated Wiederhorn’s attorney, Nicola Hanna.
Impact on Fat Brands’ Financial Health
Wiederhorn’s alleged fraud reportedly accounted for 44% of Fat Brands’ revenue between 2017 and 2021. This financial strain often left the company unable to pay its bills. Wiederhorn allegedly redirected funds from company-paid credit cards back to Fat Brands with help from his son, Thayer, the company’s chief operating officer.
Failure to Disclose Previous Convictions
The SEC complaint highlights that Fat Brands failed to disclose these cash transfers as related party transactions to investors. These transactions were later written off after the company’s merger with Fog Cutter Capital Group, also primarily owned by Wiederhorn.
Additionally, Wiederhorn has a history of legal issues. In 2006, he owed the IRS significant amounts in unpaid taxes and had previously pleaded guilty to filing a false tax return and paying an illegal gratuity. During his time in federal prison, Fog Cutter Capital continued paying his salary and even provided a bonus equivalent to the fine he paid.
Legal Proceedings and Future Outlook
Wiederhorn will be arraigned Friday afternoon in the U.S. District Court in downtown Los Angeles. The arraignments for the other defendants, including Ron Roe, Rebecca Hershinger, and William Amon, are scheduled for the first week of June.
Despite the gravity of the charges, Wiederhorn’s legal team remains confident. “We believe the court will recognize the lack of any victims, losses, or crimes in this case,” Hanna reiterated.
The allegations against Fat Brands and Andy Wiederhorn have shocked the company and its shareholders. As the legal proceedings unfold, the impact on the company’s reputation and financial stability remains to be seen. Investors and stakeholders will closely monitor the case, awaiting further developments and potential repercussions for the involved parties.