Federal prosecutors in Los Angeles have charged Fazoli’s Lexington-based parent company Fat Brands, along with three officials, in connection with a $47 million “fictitious loan” scheme to defraud shareholders.
Fat Brands, which is a publicly traded company, purchased Fazoli’s in November 2021, adding a lineup of brands including Fatburger, Johnny Rockets, Hurricane Grill and Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses.
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It’s unclear what the indictments will mean for Fazoli’s, which is headquartered on Palumbo Drive, or the other restaurant chains. Fazoli’s was founded in Lexington as Gratzi’s in 1988 by restaurateur Kunihide Toyoda and became famous for its inexpensive but tasty Italian fare and free breadsticks.
The Securities and Exchange Commission also filed a civil action against the company and several executives. The FBI and IRS Criminal Investigation are also investigating.
In trading following the announcement of the fraud allegations, Fat Brands shares lost about a quarter of their value.
What the Fat Brands indictments allege
According to the U.S. Attorney’s Office, former CEO and current Chairman Andrew Wiederhorn, who is still the majority shareholder of Fat Brands Inc., hid multimillion-dollar payments and evaded taxes, with help from FAT’s financial director and an external accountant who were also accused.
“This defendant, the former CEO of a publicly traded company, allegedly engaged in a long-running scheme to defraud investors and the United States Treasury out of millions of dollars,” said U.S. Attorney Martin Estrada, in a press release. Press release. “Instead of caring for shareholders, the defendant allegedly treated the company as his personal slush fund, in violation of federal law.”
Wiederhorn, of Beverly Hills, is accused of using company funds to “fund his lavish lifestyle,” according to the release, which calls him a “serial tax evader” with charges linked to various businesses dating back at 30 years old.
From 2010 to early 2021, Wiederhorn allegedly received approximately $47 million in fictitious loans for his personal use and profit that he had no intention of repaying, paid no taxes and used as a loss in company books.
According to the release, “Defendant Wiederhorn caused millions of dollars from Defendant FAT’s accounts to be paid to Defendant Wiederhorn and his family members for their personal benefit,” according to the deed. ‘charge. “These disbursements were used to finance the purchase of private jet trips, vacations, a Rolls Royce Phantom, other luxury automobiles, jewelry and a piano.”
What Fat Brands Shareholders Can Do
The indictment then describes several transfers of hundreds of thousands of dollars that Wiederhorn forced others at FAT to make directly from FAT accounts to pay Wiederhorn’s personal debts related to the American Express credit card.
Any investors who believe they have been victims of the crimes alleged in the indictment are encouraged to visit https://www.justice.gov/usao-cdca/united-states-v-andrew-wiederhorn-william- j-amon-rebecca. -d-hershiner-and-fat-brands-inc for more information and updates on this.
In trading following the announcement, Fat Brands shares lost about a quarter of their value.
Reaction from big brands
In a statement, the company said the accusations were unfair.
“Today, Fat Brands was informed that it has been charged with two violations of SOX 402 for making loans of approximately $2.65 million to Andy Wiederhorn,” said Thomas Zaccaro, an attorney at Hueston Hennigan and attorney for Fat Brands, in a statement. “These accusations are unprecedented, unwarranted, unfounded and unjust. They are based on conduct that ended more than three years ago and ignore the company’s cooperation with the investigation.”
“Fat Brands will take all necessary measures to defend itself, while seeking a just resolution to these accusations,” he added.
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