Federal authorities have charged Fat Brands and its chairman, Andy Wiederhorn, with committing a scheme that resulted in $47 million in bogus loans from the restaurant company. The charges include wire fraud, tax evasion, and other counts related to the alleged scheme. Wiederhorn, along with a few others, were indicted by a federal grand jury in Los Angeles. In a separate civil complaint, the Securities and Exchange Commission accused the company and Wiederhorn of violations related to the same conduct. Fat Brands’ counsel has called the charges unwarranted and unjust, stating that they are based on conduct that occurred over three years ago.
Wiederhorn, who was convicted in a criminal case involving similar conduct two decades ago, is also facing separate criminal charges for being a federal felon in possession of a handgun and ammunition. His attorney has criticized the charges as an example of government overreach and claims that there were no victims, losses, or crimes involved. As chief executive of Fat Brands, Wiederhorn allegedly directed the company to lend funds to him with no intention of repayment, using the money for personal expenses such as private jets, luxury vacations, and jewelry. He stepped down as CEO last year following an SEC investigation, and the fraud allegedly accounted for a significant portion of the company’s revenue from 2017 to 2021.
The SEC alleges that Wiederhorn also redirected funds from credit cards back to the company to cover bills, with assistance from his son Thayer who was the company’s chief marketing officer at the time. These cash transfers were not disclosed as related party transactions to investors, and in 2020, they were written off after the company’s merger with Fog Cutter Capital Group, majority-owned by Wiederhorn. Former executives Ron Roe and Rebecca Hershinger were named as defendants in the SEC complaint, along with tax advisor William Amon. Additionally, Wiederhorn has owed taxes for his personal income to the IRS since 2006 and did not report the loans from Fat Brands as income. As of March 2021, he owed $7.74 million in unpaid personal taxes.
Wiederhorn’s previous criminal conviction involved filing a false tax return and paying an illegal gratuity while leading Fog Cutter Capital, resulting in a $2 million fine and over a year in federal prison. During his time in prison, the company’s board paid him a bonus equal to the fine and continued his salary, sparking criticism. The alleged fraudulent scheme at Fat Brands resulted in financial difficulties for the company, as Wiederhorn’s actions amounted to a significant portion of its revenue. The charges brought by federal authorities and the SEC highlight the seriousness of the allegations and the potential impact on investors and the company’s financial stability.
The legal proceedings against Wiederhorn and Fat Brands point to issues of corporate governance, financial transparency, and compliance with regulations. The alleged fraud and tax evasion raise concerns about ethical practices and accountability within the company’s leadership. The involvement of former executives and advisors in the SEC complaint underscores the broader implications of the alleged misconduct. The case serves as a reminder of the importance of maintaining integrity, honesty, and compliance in corporate operations to prevent financial harm and legal consequences.
The impact of the charges on Fat Brands’ reputation, financial standing, and investor confidence remains to be seen as the legal proceedings unfold. The company’s response to the allegations, along with the outcomes of the criminal and civil complaints, will determine its future trajectory. The case also sheds light on the need for robust corporate governance, internal controls, and oversight to prevent fraud and misconduct within organizations. The allegations against Wiederhorn and Fat Brands serve as a cautionary tale for companies to prioritize ethical behavior, transparency, and compliance with regulatory requirements to maintain trust and credibility with stakeholders.
