More than a year after news first broke that he and his company were under investigation, Fat Brands Chairman Andy Wiederhorn was indicted last week in connection with a false loan scheme dating back to 2010.
The charges are complex, as is the civil lawsuit filed against both Wiederhorn and Fat Brands and current and former company executives. Let’s see if we can’t answer a few questions about those charges, what they are, and what they mean.
So what exactly did the feds do last week? The U.S. Attorney’s Office in the Central District of California charged Wiederhorn, CPA William Anon, former Fat Brands CFO Rebecca Hershinger and Fat Brands itself in connection with the loan scheme.
Wiederhorn was charged with obstructing the administration of the Internal Revenue Code, tax evasion, making false statements, omitting facts, certifying faulty financials, wire fraud and making a personal loan to an executive officer.
Hershinger was charged with wire fraud, making false statements, omitting facts and certifying false financials. Amon was charged with filing false tax returns.
Wiederhorn was charged separately with being a felon in possession of a gun and ammo.
The SEC, meanwhile, sued Wiederhorn, Hershinger, Fat Brands and former company executive Ron Roe in connection with the loan scheme’s impact on Fat Brands since 2018, after the company went public.
OK so explain this loan scheme. According to the charges, Wiederhorn’s Fog Cutter Capital Group, and then Fat Brands, disguised $47 million in distributions as “shareholder loans.” Those loans did not accrue interest, according to the charges, and he made no payments. Instead, those loans were periodically forgiven, between 2016 and 2021.
By disguising these payments as loans, rather than as direct payments, the charges say Wiederhorn was able to avoid paying taxes.
Fog Cutter acquired Fatburger in 2003. In 2011 it purchased Buffalo’s Café and then in 2017 it acquired Ponderosa and Bonanza steakhouses. Fog Cutter transferred ownership of the restaurants to a new company, Fat Brands, in exchange for a $30 million note. This left Fog Cutter with no revenue and only one asset: $100 million in net operating losses, which would ultimately be used as a tax benefit for Fat Brands.
Wiederhorn allegedly continued a practice he used at Fog Cutter, using loans from the company to pay for personal expenses that are later forgiven.
For instance, in 2018, Fat Brands received a $13.6 million loan, which was transferred to a trio of accounts. Wiederhorn allegedly directed an employee to use $944,185 of that to repay his personal American Express card, another $105,000 to pay rent and to transfer $762,455 to a personal account.
In one 2020 email, Wiederhorn allegedly said he received annual salary of $400,000, plus another $3 million to $4 million in loans that the company periodically forgives.
So what did Wiederhorn buy with all this? Apparently, Wiederhorn paid his credit card bills, rent, first-class airfare, vacations, jewelry, a piano, a Rolls Royce Phantom and other luxury cars.
How did this impact Fat Brands? Quite a bit, particularly if you believe the SEC’s charges.
The agency says the payments to Wiederhorn stripped Fat of about 40% of its revenue during the period, “often leaving the company with insufficient cash to pay its own bills.”
According to the SEC’s lawsuit, Fat Brands’ revenue was $61 million between July 2018 and December 2020. During that period, Fat Brands sent Fog Cutter $38 million, $27 million of which was used to pay Wiederhorn’s personal expenses or for direct cash transfers. That $27 million amounted to 44% of Fat Brands revenue during that period.
In response, his son Thayer Wiederhorn allegedly transferred millions of dollars back to Fat Brands when the company was short on cash. Wiederhorn, using credit cards paid by Fat Brands, sent cash to Thayer, and Thayer transferred those funds to Fat Brands. Those transferred totaled more than $9 million between 2017 and 2019.
The charges have certainly impacted Fat Brands stock, which fell 27% after word of the indictment emerged.
What about the board? This is where the issue gets particularly interesting. The federal charges say that the board of directors of Fog Cutter were unaware of the reasons for the loans or why they were forgiven.
And then, in March 2023, Wiederhorn replaced the entire board of directors at Fat Brands. Directors' replacements included several members of Wiederhorn's own family. The company's former chairman, Ed Rensi, refused to be reappointed to the board.
The Department of Justice claims the board was overhauled after members of the previous board communicated with the government. The board was then replaced with a majority of directors who were under his control.
What did Fat Brands say about it? Interestingly, the company’s statement on the indictment, through its counsel, Thomas Zaccaro, covers only the charges made against the company itself.
Interestingly, he says this: “These charges are unprecedented, unwarranted, unsubstantiated and unjust. They are based on conduct that ended over three years ago and ignore the company’s cooperation with the investigation.” In short: Yes the conduct happened. But it’s three-year-old conduct.
An attorney for Wiederhorn has in the past blamed the issue on the owner of a privately-held company—Fog Cutter—mixing personal and business expenses.
He himself has blamed his past for the investigation.
“These charges are wrong on both the facts and the law,” Nicola Hanna, Wiederhorn’s attorney, said in a statement. Mr. Wiederhorn consultant and followed the advice of world-class professionals in all his business dealings. He has led an extraordinarily successful company that has performed beyond expectations since the merger of Fat Brands and Fog Cutter Capital in 2020. We look forward to making it clear in court that this is an unfortunate example of government overreach, and a case with no victims, no losses and no crimes.”
Are these charges similar to Wiederhorn’s past conviction? Yes. Wiederhorn pleaded guilty in 2004 to federal tax charges involving another company he ran, Wilshire Credit Corp., and spent 16 months in prison. He was paid while he was in prison.
The feds have made clear the similarities between that case and this one. They noted that Wiederhorn first began using shareholder loans to pay himself millions 30 years ago with Wilshire Credit, ultimately forgiving some $65 million in debts he owed to that company.
“The allegations contained in the indictment against Mr. Wiederhorn show that he is a serial tax cheat,” IRS Special Agent In Charge Tyler Hatcher said in a statement. “His actions over decades hurt not only his company and its shareholders, but also every American taxpayer.”
What happens now? That’s a great question. Fat Brands continues to go about its business, notably filing confidentially to take Twin Peaks public.
The charges and the SEC lawsuit will certainly cast a pall over that effort, likely limiting the potential valuation such a company will be able to get in any kind of public offering.
Beyond that, investors in Fat Brands have long known about Wiederhorn and its history. The investigation has been public for 18 months and the oncoming charges were made known two months ago.
Wiederhorn has clearly set the company up to withstand whatever charges hit him personally, naming a pair of co-CEOs and providing bonuses to keep them around given these challenges. But he has always been a singular figure at Fat Brands. It’s difficult to imagine the company without him.
UPDATE: This story has been updated to add a statement from Wiederhorn's attorney.
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