Former CEO of Fat Brands Inc., which is a restaurant franchising company whose brands include Johnny Rockets, Fatburger, and Fazoli’s, has been discovered by police as being part of a $47 million fraud scheme.
Andrew A. Weiderhorn is among others who were found to have been a part of this scheme, which included CFO Rebecca D. Hershinger, accountant William J. Amon, and the company itself, in a report by the Department of Justice.
Fat Brands Inc. Is Struggling Financially
Some of the Fat Brands Inc. brands, including Round Table, have been struggling financially recently. So much so that in early 2024, Round Table announced its plans to lay off over 1000 delivery drivers, as it could no longer afford to pay them.
This comes after they had decided to transfer their food delivery needs to third-party companies, which will come as a cost to customers because they will have to pay more to order their favorite foods.
Fat Brands Shares Are Down
Most likely, as a result of Wiederhorn being indicted, shares in Fat Brands were down as of early May 2024.
They were down by 27% and currently have a market value of $92 million. Its market cap is the lowest it has been in at least two years, with its peak being in February 2024 at $0.15 billion, with its last low point being in October 2023 at $95.1 million.
Wiederhorn Hid His Shareholder Loans
Wiederhorn hid his shareholder loans from the IRS and SEC, and was helped by Hershinger and Amon to do so.
This all started around 30 years ago, at a point where he was CEO of Wilshire Credit Corporation (WCC). He disguised payments to himself as shareholder loans, as well as forgiving himself from the $65 million he owed in debts.
Wiederhorn Has Owed Income Tax Since 2006
These findings were discovered when the IRS was trying to source the income tax Wiederhorn has owed since 2006. This includes the tax he owes personally and as a responsible party for multiple business entities.
Amon was seen as partly responsible for this as he was part of the advisory firm Anderson, which gave tax advisory services to Wiederhorn, Fat Brands, and Fog Cutter Capital Corporation (FOG), which is a former affiliate of Fat Brands.
Wiederhorn Owes $7 Million in Unpaid Tax
After investigating Wiederhorn’s financial history, the IRS found that, by March 2021, he owed $7,743,952 in unpaid personal income tax, including statutory interest and penalties.
The indictment also found that Wiederhorn had been determining for himself the amount, timing, and form of extension and forgiveness for the loans he was taking out in the company’s name without informing the company directors at Fat Brands Inc. or FOG.
The Practice Reportedly Ended Three Years Ago
Fat Brands counsel Brian Hennigan has said that these recent reports are old and claims that the charges the company and Wiederhorn are currently facing are based on practices that ended three years ago. He added that since they came to light, they’ve been stopped.
Hennigan also said that the charges are “unprecedented, unwarranted, unsubstantiated, and unjust” and that Fat Brands is fully cooperating with the investigation.
Wiederhorn Has Previously Been Convicted
This isn’t the first time that Wiederhorn has been convicted of similar crimes. He was previously convicted around 20 years ago and was criminally charged in an indictment in Los Angeles as a federal felon, because he had been found in possession of a handgun and ammunition.
Wiederhorn’s attorney has made it clear they will be telling the court that the government is overreaching and claims this has no victims, no losses, and no crimes.
Wiederhorn Is in Violation of Federal Law
If he is found guilty of these crimes, Wiederhorn will be in violation of federal law. This is because his scheme comes at a cost to investors and the US Treasury.
The Department of Justice says this is a multi-layered fraud strategy. It also hurts American taxpayers because he has failed to report his income for decades, which can cause a loss of taxpayer money.
The Sarbanes-Oxley Act
Wiederhorn has been taking “loans” from Fat Brands Inc., which means the company, among other things, violates the Sarbanes-Oxley Act, which prevents personal loans from being given to the CEO of a publicly traded entity.
This could be damaging to the company. While the name “Fat Brands” isn’t that well known, the companies that trade under it, including Round Table and Johnny Rockets, are. In turn, this could limit the amount of footfall these restaurants get.
Wiederhorn Took the Loans for His Personal Use
When looking into the uses of the loans taken by Wiederhorn, it was discovered that he has used them for his own personal gain and not for the benefit of the company.
Some of the the money was spent for the use of a personal private jet, going on vacation, the purchase of a Rolls Royce Phantom, along with other luxury vehicles, some jewelry, and a piano.
Fat Brands Inc. Shareholders Can Take Action
One group of people likely to be affected by this scheme are shareholders of Fat Brands Inc. Those who believe they are victims of these crimes have been told to follow a link to receive further information and updates on the situation.
In the meantime, Wiederman and the others involved in this scheme are waiting to see whether they will be found guilty and what the repercussions of this will be, which could involve hefty prison sentences and fines.
