Class Action Alleges Fatburger Investors Were Harmed Financially After CEO Fraud Probe Made Public [UPDATE]

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FAT Brands Inc. and its top officers face a proposed class action that alleges those who bought shares in the restaurant operating group were injured financially following the public revelation that CEO Andy Wiederhorn was the subject of a federal probe. 

The 28-page suit alleges quarterly reports filed by the company, who runs Johnny Rockets, Fatburger and other restaurant chains, since 2017 were false and misleading given they neglected to mention that Widerhorn and/or his son, FAT Brands’ COO, had engaged in certain business transactions “for no legitimate corporate purpose.” 

Moreover, the lawsuit claims that FAT Brands misrepresented and/or failed to disclose to investors that the company had ignored “warning signs” related to the Wiederhorns’ transactions, and that as a result FAT would likely face “increased scrutiny, investigations, and other potential issues.” 

As the case tells it, the truth began to emerge upon the February 19, 2022 publication of a Los Angeles Times report that revealed the Wiederhorn family was under investigation for alleged securities and wire fraud, money laundering and attempted tax evasion. Per the Times, federal agents in December raided the Beverly Grove, California home of Wiederhorn’s son and daughter-in-law, seizing phones, digital storage devices, documents and other records. 

“On this news, FAT Brands’ class A common stock price fell $2.42 per share, or 23%, to close at $8.14 per share on February 22, 2022, on unusually heavy trading volume, damaging investors,” the lawsuit says, noting that the company’s class B stock price also took a tumble following the news. 

According to the Times, a November 2021 affidavit from a special agent for the FBI alleged that Wiederhorn had “devised and executed a fraudulent scheme” to avoid paying taxes and received millions in sham loans through his companies. 

The lawsuit goes on to state that two days after the publication of the Los Angeles Times report, FAT Brands disclosed to the Securities and Exchange Commission (SEC) that the U.S. Attorney’s Office for the Central District of California had opened investigations into the company and Wiederhorn, and formally sought documents and materials concerning, among other matters, FAT’s December 2020 merger with Fog Cutter Capital Group, transactions between the companies and Wiederhorn and “compensation, extensions of credit and other benefits or payments received by Mr. Wiederhorn or his family.” 

“As a result of Defendants’ wrongful acts and omissions, and the decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” the suit alleges. 

The case, filed on April 15, 2022 in California, looks to cover all individuals and entities who purchased or otherwise acquired publicly traded FAT Brands securities between December 4, 2017 and February 18, 2022. 

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