The federal government has opened an investigation into Fat Brands CEO Andy Wiederhorn, the company confirmed on Tuesday, after reports over the weekend revealed that the FBI raided the home of his son in December.
Fat Brands, the owner of Johnny Rockets, Fatburger and several other chains, said the U.S. Attorney’s Office in Central California along with the Securities and Exchange Commission is looking into the company’s 2020 merger with Wiederhorn’s investment firm, Fog Cutter Capital Group.
They are also looking into transactions between the companies and Wiederhorn, including loans and other benefits.
Fat Brands said it is cooperating with the investigation and believes it is “not currently a target of the U.S. Attorney’s investigation.” It also said that it is “not able to reasonably estimate the outcome or duration of the government investigation.” No charges have yet been filed.
Fat Brands stock plunged more than 21% early Tuesday on the news.
On Saturday, the Los Angeles Times reported that federal agents in December raided the home of Wiederhorn’s son Thayer as part of an investigation into securities and wire fraud, money laundering and attempted tax evasion. The report also said investigators asked for a search warrant covering Andy Wiederhorn’s Beverly Hills home.
At issue were years of credit card purchases paid out of accounts held by Fat Brands, including $183,500 for jewelry, a $150,000 down payment on a Rolls-Royce and $100,000 for a Beverly Hills divorce attorney.
The investigation follows a shareholder lawsuit, filed last year, against Fat Brands and Fog Cutter Capital Group. The lawsuit, filed in a Delaware court, accuses Wiederhorn of using Fat Brands “as a discount lender and a plaything” of Fog Cutter.
The lawsuit says Fog Cutter made $27 million in cash advances over several years, using funds borrowed from Fat Brands. It says Fog Cutter owed Fat Brands $38.7 million as of September 2020. It also argues that Fog Cutter forgave the loans to Wiederhorn, just before Fat Brands merged with the investment firm. The lawsuit says the merger left Fat Brands deep in debt and with a “going concern warning” from its auditors.
A judge in Delaware allowed the lawsuit to proceed earlier this month.
The actions follow what has been an active 18 months for Fat Brands. In addition to its merger with Fog Cutter, the company has acquired Johnny Rockets, Fazoli’s, Twin Peaks and Round Table Pizza owner Global Franchise Group.
The deals, totaling about $900 million, were funded with securitized debt that has been expanded with each acquisition.
Wiederhorn has had issues with the law before. He spent 16 months in prison in 2005 and 2006 after pleading guilty to filing a false tax return. Fog Cutter Capital paid him a bonus equal to the $2 million fine he was levied and paid Wiederhorn’s salary while he was in prison.
UPDATE: This story has been updated to add information on Fat Brands’ stock price and Wiederhorn’s background.
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