Andrew Wiederhorn, CEO of the company that owns Fatburger, Johnny Rockets, and Round Table Pizza restaurants is under federal investigation for securities fraud, wire fraud, money laundering, and tax evasion. What makes this story so interesting is that Wiederhorn already did a stint in prison, serving 14 months in 2005 and 2006 for filing a false tax return and paying Jeffrey Grayson an illegal gratuity while he worked at Wilshire Credit.
Before we even get to the current alleged crimes, it’s important to note that he takes no responsibility for his previous crimes. Instead, he says he “got bad legal advice” and that “cause violations of ERISA.” What is an illegal gratuity, you ask? It’s almost like a bribe. But a bribe technically is a payment that occurs before someone is supposed to do (or not do) something. The illegal gratuity occurs after someone did (or did not do) something. So think of it like tipping the public official who happened to vote on something in a way that you liked.
I’m not sure how one engages in illegal gratuities due to bad legal advice, but okay….
As part of this new federal investigation, a search warrant was served on the home of Brooke Wiederhorn, Andrew’s son. The reds removed phones, digital storage devices, tax documents, and other documents. They also requested to do a search warrant on Andrew’s home, but no one seems to know if that occurred. (But if he was the main target of the investigation, I think it’s safe to assume it happened.)
What did Wiederhorn allegedly do? He, his children, and his relatives are accused of massive credit card purchases that were paid for by the publicly traded FAT Brands (NASDAQ: FAT). The logical conclusion could be that this is a problem because these charges were booked as business expenses. That might mean that taxable income was fraudulently reduced AND that shareholders were cheated out of profits.
The personal charges paid by the company included things like:
- $183,500 for jewelry in London
- $150,000 for a downpayment on a Rolls-Royce
- $100,000 to a Beverly Hills divorce attorney
All told, the FBI agents investigating Wiederhorn say that between October 2017 and May 2019, $5 million of company money went to pay personal credit card bills for cards issued to him, his six children, his month, his household employees, his ex-wife, and others.
There is also an allegation that Wiederhorn got millions of American Express points by sending money through his son’s Paypal account. About $9 million was allegedly sent round trip from the company, through the Paypal account, and back to the company. This earned Wiederhorn a ton of American Express points, but cost the company about $250k in Paypal fees. Yikes!
Wiederhorn is also accused of receiving millions of dollars of sham loans through the FAT companies. How does that work? Someone in charge of a company takes out a bunch of money for personal purposes and pretends it’s a loan…. that way they don’t pay income taxes on it like they would if it was paid to them as a salary.
This case demonstrates my work so clearly. In the affidavit completed by the FBI agents investigating Wiederhorn, they say his 2018 income tax return shows $403k of income, and his 2017 tax return shows $395k of income. Yet….. when he got a car loan and a home loan in 2018, his applications say that he earned $200k per month. And I bet when you take a look at his lifestyle, you see that he’s got a burn rate of $200k per month, and that money has to come from somewhere.
Would it surprise you that he also owes the IRS about $3 million in back taxes, penalties, and interest?