Former FAT Brands CEO Accused Of Running $47 Million Loan Scheme
Revealed in a May 10 notice from the United States Attorney's Office for the Central District of California, the former CEO of food franchiser Fat Brands Inc. (FAT), has been indicted on federal charges involving $47 million. Andrew Wiederhorn, still the controlling shareholder of the company, is accused of committing tax evasion and defrauding multiple affected parties by hiding millions of dollars in reportable and taxable income.
As it involved a publicly traded business entity, Weiderhorn's scheme came at a cost to investors and the U.S. Treasury, explains U.S. Attorney Martin Estrada. "Instead of looking out for shareholders," he said, "the defendant allegedly treated the company as his personal slush fund, in violation of federal law." According to the Justice Department, the multi-layered fraud strategy involved Wiederhorn wrongfully obtaining "shareholder loans" from the IRS and FAT minority shareholders, ultimately affecting public investors. Special Agent in Charge Tyler Hatcher added that failure to report income also hurts every American taxpayer.
Wiederhorn, from Beverly Hills, California, was hardly alone in the intricate web of deception, with alleged participation by additional indicted defendants, including Rebecca D. Hershinger, the former FAT Chief Financial Officer, and William J. Amon, a participating tax advisor. The company itself, Fat Brands, Inc., is also named in the indictment. The so-called loans to Wiederhorn put FAT in peril of violating what's known as the Sarbanes-Oxley Act, which restricts personal loans to the CEO of a publicly traded entity.
What is FAT Brands in the world of food franchising?
The Beverly Hills-based FAT Brands Inc. may not be a household name, but it's certainly well-known in the food and restaurant industries. Countless everyday consumers have unknowingly frequented Fat venues, which include iconic eating establishments such as Johnny Rockets, Fatburger, Round Table Pizza, and steakhouses such as Bonanza and Ponderosa. Lesser known but regionally popular franchised restaurants include Hurricane Grill and Wings, with 30 locations in Florida alone, as well as the Marble Slab Creamery ice cream chain, Yalla Mediterranean, Twin Peaks, and Smokey Bones, once listed as one of the best restaurants in America by celebrity chef Robert Irvine.
As a global franchising company, FAT Brands sits in the crosshairs of multiple official entities, including the U.S. Securities and Exchange Commission (SEC), which filed its own fraud charges on May 10. Targeted in the SEC indictment are FAT, Wiederhorn, and Hershinger, plus former CFO, Ron Roe. Cited violations, occurring from October 2017 to March 2021, revolve around disclosures of personal expenses by Wiederhorn, to the tune of $27 million. The complaint alleges the use of FAT assets for luxury vacations, private flights, a Rolls Royce Phantom, a piano, credit card debts, and even paying mortgages.
Widerhorn has also been charged with a firearms violation for reportedly harboring a firearm and ammunition, which is illegal due to a former 2004 felony conviction. He previously served 16 months for charges involving a pension scheme defrauding investors of up to $160 million.