Federal authorities charged Friday Greasy marks and its president 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.
Fat Brands shares closed down 27% on Friday. The company has a market value of $92 million.
Fat Brands, Wiederhorn and certain other people were criminally indicted by a federal grand jury in Los Angeles on wire fraud, tax evasion and other charges related to the alleged scheme.
In a separate civil complaint, the U.S. Securities and Exchange Commission charged the company and Wiederhorn with violations involving the same conduct.
“These charges are unprecedented, unwarranted, unfounded and unfair,” Fat Brands attorney Brian Hennigan said in a statement. “They rely on conduct that ended more than three years ago and ignore the Company's cooperation with the investigation.”
Wiederhorn, who was convicted two decades ago in a criminal case involving similar conduct, was separately criminally charged in an indictment in Los Angeles with being a federal felon in possession of a gun and ammunition.
“We hope to make clear to the court that this is an unfortunate example of government overreach, and a case with no victims, no losses and no crimes,” said Wiederhorn's lawyer, Nicola Hanna.
As CEO of Fat Brands, Wiederhorn, 58, allegedly directed the company to loan him its own funds, with no intention of ever repaying the “bogus” loans, 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 resigned as CEO last year after the company revealed that the SEC was investigating him. In February, Fat Brands revealed that it had received a notice from Wells from the agency, which meant the SEC planned to take action against him.
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 those situations, Wiederhorn would allegedly redirect funds from credit cards paid by Fat Brands to the company with the help of 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 canceled after the company merged with Fog Cutter Capital Group, Fat Brands' largest shareholder, which was also majority owned by Wiederhorn, according to the SEC complaint.
Ron Roe, vice president of finance and the company's former chief financial officer, and Rebecca Hershinger, another former chief financial officer, were also charged in the SEC complaint. Hershinger and tax consultant 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 early as 2006, Wiederhorn owed taxes on his personal income to the IRS. According to the indictment, he also failed to report any of the so-called Fat Brands loans as income. 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 he ran 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, the board of directors of Fog Cutter Capital chose to pay him a bonus equal to the fine and continued to pay his salary, a decision that generated widespread criticism.
Wiederhorn is expected to be arraigned Friday afternoon in U.S. District Court in downtown Los Angeles. Indictments of the remaining defendants are expected in the first week of June.
