Fatburger, Johnny Rockets owner settles investor fraud claims for $3M

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Fatburger settlement overview: 

• Who: The owner of Fatburger and Johnny Rockets has reached a $3 million settlement deal with investors.
• Why: The settlement ends claims that the owner of Fat Brands misused company funds, harming shareholders. 
• Where: The class action settlement was filed in a California federal court.

The owner of Fatburger and Johnny Rockets has reached a $3 million settlement deal with investors to end claims that he and his family misused company funds, harming shareholders. 

In a memorandum for preliminary approval filed Sept. 23 in a California federal court, investors Robert J. Matthews and Michael Melendez said they had reached a settlement deal with Fat Brands Inc. and its CEO Andrew Wiederhorn.

The pair initially filed the class action lawsuit in June, claiming Wiederhorn used the company as his “personal piggy bank” and the company’s stock prices fell after a disclosure that the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) were investigating compensation and other benefits received by Wiederhorn and his family.

The investors claimed that Wiederhorn used his control of the company to make and forgive loans to himself and family members between Oct. 2017 and May 2019.

They also alleged that Wiederhorn had Fat Brands pay about $5 million for his and his family’s personal expenses, and coordinated with his son to misuse millions of dollars of company funds to fraudulently generate credit card reward points for his personal benefit.

The DOJ and SEC investigation came to light in a February article published by the Los Angeles Times, the memo states. 

Several days after the article was published, Fat Brands acknowledged there was an investigation underway, causing its Class A common stock to fall 23%, its Class B common stock to fall 17%, its preferred stock to fall 30% and its warrants to fall by 35%, the investors claimed.

Fatburger settlement recovers almost one-third of damages, plaintiffs say

The $3 million deal recovers approximately 31% of the maximum estimated damages of $9.7 million under their best-case scenario, the investors say in the memo.

Approval of the deal will provide immediate relief to class members and will diminish the risks of continued litigation, the memo states. 

The plaintiffs’ attorneys will seek a third of the settlement fund. 

Meanwhile, in 2017, a Johnny Rockets FACTA class action lawsuit concluded with a $37 million judgment that includes statutory and punitive damages, despite the restaurant filing a Chapter 7 bankruptcy.

Are you an investor in Fat Brands? Let us know your thoughts on this settlement in the comments! 

The investors are represented by Laurence M. Rosen, Phillip Kim and Joshua Baker of the Rosen Law Firm PA, by Jeremy Lieberman and Brenda Szydlo of Pomerantz LLP and by Peretz Bronstein of Bronstein Gerwitz & Grossman LLC.

The Fat Brands class action settlement is Robert J. Matthews v. Fat Brands Inc. et al, Case No. 2:22-cv-01820, in the U.S. District Court for the Central District of California.

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