Federal prosecutors in Los Angeles indicted Fazoli’s parent company, based in Lexington Fat brands and three employees in a $47 million “simulated loan” scheme that defrauded shareholders.
Fat Brands, which is a publicly traded company, I bought Fazoli’s in November 2021adding to a host of brands that include Fatburger, Johnny Rockets, Hurricane Grill and Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses.
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It’s unclear what the charges will mean for Fazoli’s, which is based on Palumbo Drive, or other restaurant chains. Fazoli’s was founded in Lexington as Gratzi’s in 1988 by restaurateur Kunihide Toyoda and became famous for its cheap but tasty Italian dishes and free baguettes.
The Securities and Exchange Commission also filed a civil lawsuit against the company and several executives. The FBI and IRS criminal investigation are also investigating.
In trading after the fraud allegations were announced, Fat Brands shares lost about a quarter of their value.
What the Fat Brands accusations allege
According to the U.S. Attorney’s Office, former CEO and current chairman Andrew Wiederhorn, who is still the controlling shareholder of Fat Brands Inc., hid millions in payments and avoided taxes, with the help of FAT’s chief financial officer and from an external counter that were also loaded.
“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 of millions of dollars,” said U.S. Attorney Martin Estrada, in a press release. “Instead of looking out for shareholders, the defendant allegedly treated the company like his personal slush fund, in violation of federal law.”
Wiederhorn, of Beverly Hills, is accused of using company funds to “finance his lavish lifestyle,” according to the statement, which called him “a serial tax cheat,” with allegations relating to multiple companies dating back to 30 years.
From 2010 through early 2021, Wiederhorn allegedly received approximately $47 million in false loans for his personal use and benefit that he had no intention of repaying, failed to pay taxes on, and was used as a loss on the company’s books.
According to the release, “Defendant Wiederhorn caused millions of dollars from Defendant FAT’s accounts to be disbursed to Defendant Wiederhorn and his family members for his personal benefit,” according to the indictment. “These disbursements were used to finance the purchase of private jet travel, vacations, a Rolls Royce Phantom, other luxury automobiles, jewelry and a piano.”
What Fat Brands Shareholders Can Do
The indictment goes on to describe several transfers of hundreds of thousands of dollars that Wiederhorn had others at FAT make directly from FAT accounts to pay Wiederhorn’s personal American Express credit card debts.
Any investors who believe they have been victims of the crimes alleged in the indictment are encouraged to contact for more information and updates on this subject.
In trading after the announcement, Fat Brands shares lost about a quarter of their value.
Fat brands backlash
In a statement, the company stated that the accusations are unfair.
“Today, Fat Brands was informed that it has been charged with two violations of SOX 402 for arranging approximately $2.65 million in loans to Andy Wiederhorn,” said Thomas Zaccaro, attorney at Hueston Hennigan and attorney for Fat Brands, in a communicated. “These accusations are unprecedented, unwarranted, baseless and unfair. 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 steps to defend itself while seeking a fair resolution to these allegations,” he added.
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