The indictment this month of Fat Brands Inc. Chair Andrew Wiederhorn on federal fraud charges hit the brand’s stock price.
Wiederhorn, who had been chief executive of the Beverly Hills restaurant franchiser and owner until stepping down in May of last year, was charged on May 10 with participating in a scheme to conceal $47 million in distributions he received in the form of shareholder loans.
On May 10, the company’s share price dropped just over $2, or about 28%, to close at an adjusted price of $5.28, a decline from the previous day’s adjusted close of $7.31.
The adjusted closing price reflects a 14-cent dividend paid on May 14.
“The indictment alleges that with the assistance of his co-defendants Mr. Wiederhorn repeatedly evaded his taxes and the law as he engaged in a coverup to avoid being accountable to shareholders,” Krysti Hawkins, the acting assistant director in charge of the FBI’s Los Angeles field office, said in a statement.
Named as co-defendants in the indictment were Fat Brands, its former Chief Financial Officer Rebecca Hershinger, and William Amon, a managing director of the Los Angeles office of Andersen, a global tax-advisory firm, who provided tax advisory services to Wiederhorn and Fat Brands, as well as to its affiliate, Fog Cutter Capital Group Inc.
Fat Brands, in a statement from its attorney, called the charges “unprecedented, unwarranted, unsubstantiated and unjust,” adding that they are based on conduct that ended over three years ago and ignore Fat Brands’ cooperation with the investigation.
“Fat Brands will take all necessary action to defend itself, while seeking a just resolution to these charges,” the statement said. “The company will continue executing on its operating plans and growth strategy.”
According to the 56-page indictment, Wiederhorn had no intention of paying back the “sham loans” he had received.
“For years, he posted no collateral, was not even assessed interest, and made no payments on interest or principal,” the indictment said. “Instead, defendant Wiederhorn caused the $47 million in compensation and distributions to be both extended and periodically forgiven from in or around 2016 through in or around January 2021.”
An IPO is in the works
While the brand’s share price has risen since the steep drop of May 10, it is still well below the 52-week adjusted high of $9.02 reached in early February. On May 14, the share price closed up nearly 4% from the day before to $5.53 on the news that Fat had registered for an initial public offering for its Twin Peaks and Smokey Bones Bar & Fire Grill brands.
Earlier in the month, the stock price went up by 1.7% on the release of Fat Brand’s first-quarter earnings. It closed at an adjusted price of $7.20 on May 2.
The company reported after the market closed on May 1 an adjusted net loss of $33 million (-$2.05 a share) for the quarter ending on March 31, compared to an adjusted net loss of $24 million (-$1.53) in the same period of the previous year. Revenue increased by 44% from the first quarter of the prior year to $152 million.
The company attributed the increase in revenue to the September acquisition of barbecue restaurant chain Smokey Bones for a reported $30 million.
Shares closed at $5.44 on May 16.
The company currently owns 18 restaurant brands, including Smokey Bones, Twin Peaks, Round Table Pizza, Fatburger, Johnny Rockets, Hot Dog on a Stick and Ponderosa and Bonanza steakhouses.
