Fathom reveals ‘material weaknesses’ in financial reporting
The firm said it’s implementing a plan to “effectively remediate” the issues, which were largely tied to an M&A side deal hidden by Fathom’s former CEO.
Fathom Holdings has uncovered "material weaknesses" in its financial reporting process and says "misstatements" may have been included in previous earnings reports as a result.
The company said it has and is continuing to take steps to address these weaknesses, which it disclosed in a 10-Q form filed with the U.S. Securities and Exchange Commission on July 16.
What Fathom says happened: The company's interim CEO, CFO and other management conducted an evaluation of "the effectiveness of our disclosure controls and procedures" and found them to be "not effective as of March 31, 2026 due to the material weaknesses in our internal control over financial reporting," the filing stated.
These internal control issues "could have resulted in material misstatements to the Company's quarterly consolidated financial statements that would not have been prevented or detected on a timely basis," it added.
Though the filing did not specify what "misstatements" may have been made, some can land a company in legal trouble. Homestore (now Move, Inc.), for example, was involved in such litigation in the early 2000s when several executives were accused of — and later pleaded guilty to — reporting false financial information to investors.
A secret side deal: Fathom placed the bulk of the blame on a 2021 acquisition, when its then-CEO and then-CFO allegedly negotiated a "side agreement" that sought to bind the company without the board's knowledge. Fathom's current board said it discovered this agreement in April.
The board concluded that Fathom was not in fact bound and that the agreement "did not have a material effect on financial information" reported in public filings. But the "tone" allegedly set by those two ex-executives "was insufficient to create the proper environment for effective internal control over financial reporting" and "to further the Company's commitment to integrity and ethical values," the 10-Q said.
Righting the ship: Fathom has already ousted one of the executives involved in the alleged 2021 activities, and the other left his leadership role years ago.
Last month, Fathom announced that it had terminated former CEO and CFO Marco Fregenal after an internal review concluded that he had "engaged in conduct inconsistent with the Company's policies, including its Code of Ethics for the Principal Executive Officer." Fregenal held multiple C-suite positions during his 14-year tenure at the firm and began serving as Fathom's chief financial officer in 2012.
Fregenal also became CEO in late 2023, when Founder Joshua Harley left his top leadership role. At the time, the company said Harley was stepping away as CEO and board chair "for family reasons."
Following Fregenal's departure, Adam Rothstein was named interim CEO and Fathom's former VP of finance, Daniel Weinmann, was promoted to CFO.
Fathom's next steps: The company outlined several strategies it plans to adopt to strengthen its financial reporting process, which include updating its Code of Ethics, adding training programs for management and board members, and boosting its risk assessment procedures.
"Management believes the foregoing efforts, once fully implemented, will effectively remediate the material weaknesses," the filing said, adding that additional measures may be taken as the company's management team evaluates further.
Those weaknesses "will not be considered formally remediated," the filing added, "until the controls have operated effectively for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively."
The bigger picture: Fathom's disclosure came a month after the company announced it had entered into an agreement to be acquired by Bed Bath & Beyond. Rothstein described the "transformational" deal as an effort to "meaningfully expand our ability to deliver a fully integrated, technology-driven experience for agents and consumers" and said it will position the company "for long-term growth."
The $53 million acquisition is expected to close later this year, pending stockholder and regulatory approval.
Real Estate News has reached out to Fathom Holdings and Bed Bath & Beyond for comment and will update this story with any response.