FAT Brands, Inc.
- Company Name
- FAT Brands, Inc.
- Stock Symbol
- Class Period
- Traceable to the October 23, 2017 initial public offering
- Motion Deadline
- October 23, 2018
- Central District of California
The complaint charges FAT Brands, certain of its officers and directors, its controlling shareholder and the underwriter of its October 23, 2017 initial public offering (“IPO”) with violations of the Securities Act of 1933. FAT Brands is a multi-brand franchising company that acquires, markets and develops fast casual and casual dining restaurant concepts, including Fatburger, Buffalo’s Café, Buffalo’s Express, Ponderosa Steakhouse and Bonanza Steakhouse.
On or about September 6, 2017, FAT Brands filed a draft of its Form 1-A, which, following several amendments, was qualified by the SEC. On October 18, 2017, a final amendment was made on Form 1-A POS, which was then utilized for the IPO (the “Qualified Statement”). On October 5, 2017, FAT Brands filed an Offering Circular with the SEC, which was subsequently amended and filed with the SEC on October 23, 2017 (together with the Qualified Statement, the “Offering Documents”). The Offering Documents were utilized by defendants on a multi-city roadshow to market FAT Brands common stock to the investing public. The roadshow was completed on October 20, 2017 and the IPO was priced at $12 per share. The defendants raised $24 million through the sale of two million shares of FAT Brands common stock during the roadshow. After the roadshow and the IPO, FAT Brands’ controlling shareholder, defendant Fog Cutter Capital Group Inc., which owned 100% of the Company’s stock before the IPO, was left with 80% of FAT Brands’ outstanding stock and the $3.84 million in annual dividends that would be paid on that stock.
The complaint alleges that the images and statements communicated to investors by defendants during the roadshow and in the Offering Documents contained material misstatements and omissions. Specifically, the defendants failed to disclose that: (1) FAT Brands’ sales growth had significantly declined; (2) sales growth at the Ponderosa and Bonanza Steakhouses was significantly below the level that FAT Brands had believed it was at when it agreed to acquire those brands in March 2017; (3) the fast-casual dining sector was saturated and facing significant headwinds and a slowdown in growth, largely caused by customers fleeing to lower cost and quicker options; (4) FAT Brands’ free cash flow was less than its annual $5 million dividend obligations; (5) the Wiederhorn family, which owned 75% of Fog Cutter Capital and thus was a controlling shareholder of the Company, planned to merge Fog Cutter Capital into FAT Brands following the IPO; and (6) Fog Cutter Capital and the Wiederhorn family had already once run Fog Cutter Capital/Fatburger into bankruptcy, which had resulted in its stock being delisted after an attempt to go on an acquisition spree, much like the spree they were undertaking at FAT Brands at the time of the IPO.
The IPO was a success for FAT Brands and the underwriter, who sold two million shares of FAT Brands common stock and raised $24 million in gross proceeds. However, the price of FAT Brands stock later fell as the market learned the truth about FAT Brands’ business metrics and financial prospects that existed at the time of the IPO but was not disclosed to investors. At the time of the filing of the complaint, FAT Brands’ stock was trading at approximately $7.80 per share, a decline of 35% from the price the stock sold at in the IPO.