In the real world, dangerous businesses aren't something out of a Hollywood movie...
It's not all smoke-filled rooms, shady people skulking in alleyways, and SUVs meeting in quiet parking lots in the rain.
If someone is trying to take you for a ride, he'll do his best to make it look like that's exactly what he's not doing.
Even the most "healthy" and "successful" companies can actually be wearing sheep's clothing. And by the time unwitting investors realize their mistake, their money has been devoured by a hungry wolf.
That brings us to September 2022 – and a restaurant operator that pinged our "red flag" radar. The fundamentals seemed sound at first glance.
But when you dug into operations and leadership, this business was anything but solid.
And it all started at the top...
You're probably familiar with many of the companies in restaurant-chain owner FAT Brands' portfolio...
FAT Brands operates and franchises 2,300 restaurants globally across 18 different brands... including Round Table Pizza, Fatburger, Johnny Rockets, Hurricane Grill & Wings, and Hot Dog on a Stick.
It seemed like a solid enough business. But the façade crumbled under closer inspection...
Back in 2022, we took a closer look at the CEO at the time... Andy Wiederhorn. He was convicted of paying an illegal gratuity and filing a false tax return back in the early 2000s.
Wiederhorn spent more than a year in prison and had to pay a $2 million fine. And that may seem like proper restitution – except he got his company, Fog Cutter Capital, to reimburse him.
This got the company in trouble with regulators. Fog Cutter was delisted from the Nasdaq stock exchange. And for a while, it stayed in the shadows.
But then Wiederhorn found a way to get back into the public markets.
That's where FAT Brands came in...
You see, Fog Cutter had acquired a few restaurant brands. Wiederhorn put them together under the FAT Brands name and took the company public in 2017.
Mind you, Fog Cutter retained a controlling interest in the company... and does to this day. It still controls more than 55% of FAT Brands' voting shares as of the latest 10-K filing.
So FAT Brands already had multiple glaring warning signs before it even went public. Wiederhorn had a history of using his company as a personal piggy bank. And he had already gotten in trouble for his past dealings.
That's not exactly a glowing recommendation.
It should be no surprise that FAT Brands' red flags eventually caught up to the company... and investors.
Since 2021 alone, FAT Brands has accumulated a cool $86 million in legal fees...
Much of that was related to allegations that Wiederhorn was effectively transferring funds from FAT Brands to Fog Cutter... and into his own pockets.
The cases ended up being settled or dismissed – one as recently as this past March. But for investors, it was too little, too late...
We warned folks against FAT Brands in our Microcap Confidential advisory back in 2022. The company had a $120 million market cap... and almost $1 billion in debt.
At the time, shares were trading above $4. They proceeded to sink lower... and lower... falling below $0.40 per share this past January.
That's when the company filed for Chapter 11 bankruptcy protection. It was delisted from the Nasdaq a few days later.
There were plenty of red flags when it came to FAT Brands...
Plenty of investors chose to ignore them altogether. After all, the business seemed sound enough... if you didn't look too closely.
And those same investors paid the price.
FAT Brands is far from alone. There are a whole lot of wolf-like companies hiding in sheep's clothing. You owe it to yourself to do your due diligence before you invest a dime.
And if leadership's past or current choices don't pass muster, you and your investment dollars should stay far away... no matter how compelling the business strategy seems.
Regards,
Joel Litman
June 3, 2026
