Federal authorities filed charges Friday Fat brands and its president, Andy Wiederhorn, for committing a brazen scheme that resulted in him receiving $47 million in fraudulent loans from the restaurant company that owns Fatburger, Johnny Rockets and Twin Peaks.
Fat Brands shares fell 27% on Friday. The company’s market value is $92 million.
Fat Brands, Wiederhorn and a few others accused of a crime by a federal grand jury in Los Angeles for wire fraud, tax evasion and other matters related to the alleged scheme.
In a separate one civil complaintThe U.S. Securities and Exchange Commission charged the company and Wiederhorn with violations related to the same conduct.
“These allegations are unprecedented, baseless, baseless and unfair,” Fat Brands adviser Brian Hennigan said in a statement. “They rely on conduct that ended more than three years ago and ignore the Company’s cooperation in the investigation.”
Wiederhorn, who was convicted two decades ago in a criminal case involving similar conduct, was separately charged in a Los Angeles indictment with being a federal felon in possession of a pistol and ammunition.
“We look forward to explaining in court that this is an unfortunate example of government overreach – a case without victims, loss or crime,” said Wiederhorn’s lawyer Nicola Hanna.
As Fat Brands’ chief executive, Wiederhorn, 58, allegedly directed the company to lend him its own funds, with no intention of ever repaying the “fictitious” loans, according to the indictment.
The SEC alleges that Wiederhorn then used the money to pay for private jets, first-class airline tickets, luxury vacations, mortgage payments and rent, as well as nearly $700,000 for “shopping and jewelry.”
Wiederhorn stepped down as CEO last year after the company disclosed that the SEC was investigating him. In February, Fat Brands disclosed that it had received a Wells notice from the agency, which meant that the SEC planned to take action against it.
Wiederhorn’s alleged fraud accounted for approximately 44% of Fat Brands’ revenue between 2017 and 2021, which meant the company was often unable to pay its bills. In these situations, Wiederhorn allegedly diverted funds from credit cards paid by Fat Brands back to the company with the assist of his son Thayer, who was then the company’s chief marketing officer and is now its chief operating officer.
Fat Brands has never disclosed money transfers to investors as related party transactions. The SEC complaint shows that in 2020, cash transfers were forgiven in connection with the company’s merger with Fog Cutter Capital Group, the largest shareholder of Fat Brands, of which Wiederhorn was also a majority shareholder.
Ron Roe, vice president of finance and the company’s former CFO, and Rebecca Hershinger, another former CFO, were also named as defendants in the SEC complaint. The indictment also names Hershinger and tax preparer William Amon. Hershinger’s attorney, Michael Proctor, said in a statement to CNBC that the allegations are baseless.
Moreover, already in 2006, Wiederhorn was obliged to pay tax on his personal income to the tax office. According to the indictment, he did not include any of the so-called income as income. loans granted by Fat Brands. As of March 2021, Wiederhorn owes the IRS $7.74 million in unpaid personal taxes.
Twenty years ago, he pleaded guilty to filing a false tax return and paying an illegal tip to a partner while running Fog Cutter Capital. He paid a $2 million fine and spent more than a year in a federal prison in Oregon. While he was in prison, Fog Cutter Capital’s board decided to pay him a bonus equal to his fine and continue to pay him his salary, which was met with widespread criticism.
Wiederhorn is expected to be arraigned Friday afternoon in U.S. District Court in downtown Los Angeles. The hearings of the remaining defendants are scheduled to take place in the first week of June.
