Fats Manufacturers, chair Andy Wiederhorn indicted in $47 million mortgage 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 firm that owns Fatburger, Johnny Rockets and Twin Peaks.

Shares of Fats Manufacturers closed down 27% on Friday. The corporate has a market worth of $92 million.

Fats Manufacturers, Wiederhorn and some different individuals had been criminally indicted by a federal grand jury in Los Angeles for wire fraud, tax evasion and different counts associated to the alleged scheme.

In a separate civil complaint, the U.S. Securities and Alternate Fee accused the corporate and Wiederhorn of violations associated to the identical conduct.

“These expenses are unprecedented, unwarranted, unsubstantiated and unjust,” Fats Manufacturers counsel Brian Hennigan mentioned in a press release. “They’re based mostly on conduct that ended over three years in the past and ignore the Firm’s cooperation with the investigation.”

Wiederhorn, who was convicted twenty years in the past in a prison case that concerned comparable conduct, was individually criminally charged in an indictment in Los Angeles of being a federal felon in possession of a handgun and ammunition.

“We sit up for making clear in court docket that that is an unlucky instance of presidency overreach — and a case with no victims, no losses and no crimes,” Wiederhorn’s lawyer Nicola Hanna mentioned.

As chief govt of Fats Manufacturers, Wiederhorn, 58, allegedly directed the corporate to mortgage its personal funds to him, with no intention of ever paying the “sham” loans again, in accordance with the indictment.

The SEC alleges that Wiederhorn then used the money to pay for personal jets, first-class airfare, luxurious holidays, mortgage and hire funds, plus almost $700,000 in “procuring and jewellery.”

Wiederhorn stepped down as CEO final 12 months, following the corporate’s disclosure that the SEC was investigating him. In February, Fats Manufacturers disclosed it had acquired a Wells discover from the company, that means the SEC was planning to take motion towards it.

Wiederhorn’s alleged fraud accounted for roughly 44% of Fats Manufacturers’ income between 2017 and 2021, which meant the corporate typically was not capable of pay its payments. In these conditions, Wiederhorn would allegedly redirect funds from bank cards paid for by Fats Manufacturers again to the corporate with help from his son Thayer, who was then the corporate’s chief advertising officer and is now its chief working officer.

Fats Manufacturers by no means disclosed the money transfers as associated social gathering transactions to traders. In 2020, the money transfers had been written off after the corporate’s merger with Fog Cutter Capital Group, Fats Manufacturers’ largest shareholder, which additionally occurred to be majority owned by Wiederhorn, in accordance with the SEC criticism.

Ron Roe, the corporate’s vice chairman of finance and former chief monetary officer, and Rebecca Hershinger, one other former CFO, had been additionally named as defendants within the SEC criticism. Hershinger and tax advisor William Amon had been additionally named within the indictment. Hershinger’s lawyer Michael Proctor mentioned in a press release to CNBC that the fees are baseless.

Moreover, way back to 2006, Wiederhorn has owed taxes for his private revenue to the IRS. He additionally didn’t report any of the so-called loans from Fats Manufacturers as revenue, in accordance with the indictment. As of March 2021, Wiederhorn owed $7.74 million to the IRS for his unpaid private taxes.

Twenty years in the past, he pleaded responsible to submitting a false tax return and paying an unlawful gratuity to an affiliate whereas main Fog Cutter Capital. He paid a $2 million advantageous and spent greater than a 12 months in federal jail in Oregon. Throughout his time in jail, Fog Cutter Capital’s board opted to pay him a bonus equal to the advantageous and continued paying his wage, a choice that attracted widespread criticism.

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