The Justice Department has charged Fat Brands Inc (NASDAQ:FAT) and its chair Andrew Wiederhorn, alleging a scheme to conceal $47 million in distributions he received in the form of shareholder loans from the IRS, FAT's minority shareholders, and the broader investing public.
Wiederhorn, the former CEO and current controlling shareholder of Fat Brands is expected to be arraigned this afternoon in U.S. District Court in downtown Los Angeles.
"This defendant, the former CEO of a publicly traded company, is alleged to have engaged in a long-running scheme to defraud investors and the United States Treasury to the tune of millions of dollars," said U.S. Attorney Martin Estrada.
Separately, the U.S. Securities and Exchange Commission filed a civil enforcement action against Wiederhorn, FAT's former CFO Rebecca D. Hershinger, FAT, and another FAT executive. They face wire fraud and tax evasion charges, among others.
Wiederhorn resigned as CEO last year amidst SEC investigations. The SEC revealed plans for action against Fat Brands following a Wells Notice in February.
In response, FAT Brands issued a statement saying it will take all necessary action to defend itself, while seeking a just resolution to these charges.
"Today FAT Brands was informed that it has been indicted on two violations of SOX 402 for arranging approximately $2.65 million in loans to Andy Wiederhorn," the company said.
As per the indictment, Wiederhorn allegedly hid millions of dollars in reportable compensation and taxable income, avoiding payment of taxes while also causing FAT to breach the Sarbanes-Oxley Act's bar on providing personal loans to public-company CEOs.
According to the regulatory statement, the FBI and IRS Criminal Investigation are looking into this issue. Additionally, Wiederhorn faces charges in a separate indictment for unlawfully possessing a firearm and ammunition following a felony conviction.
Around three decades ago, Wiederhorn started concealing distributions to himself through shareholder loans while he held the position of CEO at another company. In 2004, Wiederhorn settled a federal grand jury inquiry into this and associated actions by admitting guilt in the District of Oregon to providing illegal gratuities and submitting a falsified federal tax return.
Price Action: FAT shares are down 23.3% at $5.75 at last check Friday.
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