Fat Brands stock craters after company, chair Andy Wiederhorn charged in $47 million ‘sham’ loan scheme

Federal
authorities
on
Friday
charged


Fat
Brands
and
its
chair
Andy
Wiederhorn
of
committing
a
brazen
scheme
that
netted
him
$47
million
in
bogus
loans
from
the

restaurant
company
that
owns
Fatburger,
Johnny
Rockets
and
Twin
Peaks.

Shares
of
Fat
Brands
closed
down
27%
on
Friday.
The
company
has
a
market
value
of
$92
million.

Fat
Brands,
Wiederhorn
and
a
few
other
people
were

criminally
indicted
by
a
federal
grand
jury
in
Los
Angeles
for
wire
fraud,
tax
evasion
and
other
counts
related
to
the
alleged
scheme.

In
a
separate

civil
complaint,
the
U.S.
Securities
and
Exchange
Commission
accused
the
company
and
Wiederhorn
of
violations
related
to
the
same
conduct.

“These
charges
are
unprecedented,
unwarranted,
unsubstantiated
and
unjust,”
Fat
Brands
counsel
Brian
Hennigan
said
in
a
statement. “They
are
based
on
conduct
that
ended
over
three
years
ago
and
ignore
the
Company’s
cooperation
with
the
investigation.”

Wiederhorn,
who
was
convicted
two
decades
ago
in
a
criminal
case
that
involved
similar
conduct,
was
separately
criminally
charged
in
an
indictment
in
Los
Angeles
of
being
a
federal
felon
in
possession
of
a
handgun
and
ammunition.

“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,”
Wiederhorn’s
attorney
Nicola
Hanna
said.

As
chief
executive
of
Fat
Brands,
Wiederhorn,
58,
allegedly
directed
the
company
to
loan
its
own
funds
to
him,
with
no
intention
of
ever
paying
the “sham”
loans
back,
according
to
the
indictment.

The
SEC
alleges
that
Wiederhorn
then
used
the
cash
to
pay
for
private
jets,
first-class
airfare,
luxury
vacations,
mortgage
and
rent
payments,
plus
nearly
$700,000
in “shopping
and
jewelry.”

Wiederhorn
stepped
down
as
CEO
last
year,
following
the
company’s

disclosure
that
the
SEC
was
investigating
him.
In
February,
Fat
Brands
disclosed
it
had
received
a
Wells
notice
from
the
agency,
meaning
the
SEC
was
planning
to
take
action
against
it.

Wiederhorn’s
alleged
fraud
accounted
for
roughly
44%
of
Fat
Brands’
revenue
between
2017
and
2021,
which
meant
the
company
often
was
not
able
to
pay
its
bills.
In
those
situations,
Wiederhorn
would
allegedly
redirect
funds
from
credit
cards
paid
for
by
Fat
Brands
back
to
the
company
with
assistance
from
his
son
Thayer,
who
was
then
the
company’s
chief
marketing
officer
and
is
now
its
chief
operating
officer.

Fat
Brands
never
disclosed
the
cash
transfers
as
related
party
transactions
to
investors.
In
2020,
the
cash
transfers
were
written
off
after
the
company’s
merger
with
Fog
Cutter
Capital
Group,
Fat
Brands’
largest
shareholder,
which
also
happened
to
be
majority
owned
by
Wiederhorn,
according
to
the
SEC
complaint.

Ron
Roe,
the
company’s
vice
president
of
finance
and
former
chief
financial
officer,
and
Rebecca
Hershinger,
another
former
CFO,
were
also
named
as
defendants
in
the
SEC
complaint.
Hershinger
and
tax
advisor
William
Amon
were
also
named
in
the
indictment.
Hershinger’s
attorney
Michael
Proctor
said
in
a
statement
to
CNBC
that
the
charges
are
baseless.

Additionally,
as
far
back
as
2006,
Wiederhorn
has
owed
taxes
for
his
personal
income
to
the
IRS.
He
also
did
not
report
any
of
the
so-called
loans
from
Fat
Brands
as
income,
according
to
the
indictment.
As
of
March
2021,
Wiederhorn
owed
$7.74
million
to
the
IRS
for
his
unpaid
personal
taxes.

Twenty
years
ago,
he
pleaded
guilty
to
filing
a
false
tax
return
and
paying
an
illegal
gratuity
to
an
associate
while
leading
Fog
Cutter
Capital.
He
paid
a
$2
million
fine
and
spent
more
than
a
year
in
federal
prison
in
Oregon.
During
his
time
in
prison,
Fog
Cutter
Capital’s
board
opted
to
pay
him
a
bonus
equal
to
the
fine
and
continued
paying
his
salary,
a
decision
that
attracted
widespread
criticism.

Wiederhorn
is
expected
to
be
arraigned
Friday
afternoon
in
U.S.
District
Court
in
downtown
Los
Angeles.
The
remaining
defendants’
arraignments
are
expected
to
be
in
the
first
week
of
June.