Shares of Fat Brands cratered more than 20% on Tuesday morning after the Fatburger and Johnny Rockets parent disclosed that its CEO has been under investigation for months.
In a regulatory filing, Fat Brands said the U.S. Attorney’s Office for the Central District of California and the Securities and Exchange Commission told the company in December that they had begun investigating CEO Andrew Wiederhorn.
The government is seeking documents and materials related to Fat Brands’ merger with Fog Cutter Capital Group in December 2020 and transactions between Wiederhorn and those entities, according to the filing. Fog Cutter Capital is the largest shareholder of Fat Brands, and Wiederhorn is its majority shareholder.
Investigators are also looking into compensation, extensions of credit and other benefits that Wiederhorn or his family received. Wiederhorn’s son Thayer serves as chief operating officer of the company.
The disclosure followed a Los Angeles Times report on Saturday that the allegations against Wiederhorn include securities and wire fraud, money laundering and attempted tax evasion. The newspaper also reported that federal agents raided the home of Thayer Wiederhorn and his wife Brooke — daughter of former Real Housewives of Beverly Hills star Kim Richards — in December.
“The government has informed FAT Brands of its investigation and the Company is fully cooperating,” Fat Brands said in a statement to CNBC. “The Company is not a target of the investigation.”
The company said in the filing that it isn’t able to estimate the outcome or duration of the government investigations at this time.
In a statement to CNBC, Wiederhorn’s attorney Douglas Fuchs said that his client categorically denies the allegations and they plan to demonstrate that the government has its facts wrong.
“These loans were completely legitimate and were independently reviewed and approved,” Fuchs said. “In addition, Mr. Wiederhorn’s tax returns were prepared and approved by independent tax professionals and he has been making payments under a plan approved by the IRS.”
Fuchs also said he couldn’t comment more specifically on the allegations because the government hasn’t provided them with a copy of the affidavit despite their requests.
The SEC did not immediately respond to a request for comment from CNBC. A representative from the U.S. Attorney’s office declined to comment.
This isn’t Wiederhorn’s first time under investigation for financial crimes. In 2004, he pled guilty to filing a false tax return and paying an illegal gratuity to an associate while leading Fog Cutter Capital. He paid a $2 million fine and spent more than a year in federal prison in Oregon. During his time in prison, Fog Cutter’s board opted to pay him a bonus equal to the fine and continued paying his salary, a decision that attracted widespread criticism.
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