**FAT Brands Faces Lawsuit Over Alleged Debt Misrepresentation**
A shareholder of FAT Brands Inc. has initiated legal action against the restaurant chain, claiming the company concealed the true scale of its debt amid a deteriorating financial situation that recently saw its stock plummet to a multiyear low. The owner of popular brands like Fatburger and Johnny Rockets reportedly turned to high-interest loans, known as merchant cash advances, as its financial health declined, according to complaints filed in Delaware Chancery Court since late November.
The shareholder alleges that FAT Brands misrepresented its debt as cash in an attempt to secure new financing. The complaints suggest that the merchant cash advances, along with other financial maneuvers, were intended to artificially inflate the company’s cash position and obscure its liquidity challenges. These actions indicate more severe financial issues that were not accurately reflected in FAT Brands’ publicly available financial statements or communicated to investors.
In late November, FAT Brands warned that it might be compelled to file for bankruptcy after creditors demanded full repayment of approximately $1.2 billion in whole-business securitization debt, which the company claimed it did not have readily available. Rising costs and increased competition have led several casual dining chains to bankruptcy in recent years, particularly those burdened with significant debt where franchise companies pledge most of their assets as collateral.
The shareholder, Kevin Gordon, asserts that FAT Brands is grappling with over $1.4 billion in debt and is unlikely to meet its repayment obligations. Gordon, whose shares in FAT Brands were valued at about $1,650.60 on December 1, began investigating the company’s financial practices following a failed transaction with Alagna Advisors, where he is listed as the global head of structured credit.
FAT Brands has until next week to respond to the lawsuit, as mandated by court rules. A company representative declined to comment, and Scott Schirick, a lawyer representing Gordon, also refrained from making a statement. Earlier this week, FAT Brands’ shares reached a five-year low and have declined approximately 85% this year.
The financial troubles facing FAT Brands raise concerns for its debt holders, including 352 Capital, a hedge fund associated with Leucadia Asset Management, the asset management division of Jefferies Financial Group Inc. Jefferies has been winding down 352 Capital following a lawsuit against its former portfolio manager, Jordan Chirico, who was accused of orchestrating a significant investment in a fraudulent scheme related to a water vending machine company. Chirico had recently joined FAT Brands as its head of debt capital markets but left amid the allegations. Leucadia has also faced scrutiny in light of the collapse of First Brands Group, which was embroiled in fraud allegations, further complicating the financial landscape for its investors.
**FAQ**
**What are the main allegations against FAT Brands?**
FAT Brands is accused of misrepresenting its debt as cash to secure financing and failing to disclose significant liquidity issues, leading to a lawsuit from a shareholder.
