Fathom Holdings has disclosed potential “material misstatements” in previous financial reports, placing blame on alleged actions of the company’s former CEOs.
In a document filed earlier this month with the Securities and Exchange Commission discussing Q1 2026 financial results, Fathom Holdings claimed that former company executives may have made “material misstatements” in previous financial reports due to their failure to “maintain an effective control environment.
According to the 10Q filing, the firm said it had found that its financial reporting disclosure control and procedures were ineffective due to “material weaknesses,” which were attributed to its former CEO Joshua Harley and Marco Fregenal, who had served as CFO prior to becoming CEO in 2023, when Harley left the firm citing family reasons.
Fregenal was terminated as the firm’s CEO in June 2026 in conjunction with the announcement that Fathom was being acquired by Bed Bath and Beyond. Fathom attributed Fregenal’s termination to unspecified policy violations. The firm named Adam Rothstein as its current interim CEO.
The SEC filing did not identify what types of alleged misstatements possibly happened, but it did identify specific “deficiencies” in the reporting, which include things like not maintaining an effective risk assessment and failure to provide quality information and communication. Fathom said these deficiencies could have led to “material misstatements to the Company’s quarterly consolidated financial statements that would not have been prevented or detected on a timely basis.”
Primary factor stems from “side agreement”
Additionally, the filing claims that the “primary factor” that caused the financial reporting issues stemmed from negotiations for an acquisition in 2021 when company founder and CEO Harley and then CFO Fregenal signed a “side agreement” that allegedly bound Fathom without the board’s knowledge or authorization. According to the filing, the board only discovered this deal in April of this year, but it has concluded that the company is not bound by this side agreement and that the deal “did not have a material effect on financial information.”
“However, the tone at the top set by our former Chief Financial Officer and former Chief Executive Officer was insufficient to create the proper environment for effective internal control over financial reporting under the Committee of Sponsoring Organizations of the Treadway Commission (COCO) Framework and to further the Company’s commitment to integrity and ethical values,” the filing states.
By signing this side agreement, the company claims that Frenegal and Harley failed to set the “appropriate tone” over internal control over financial reporting.
The filing notes that Fathom does have a remediation plan in place, which includes things like appointing an interim CEO and new CFO and reviewing and enhancing the company’s Code of Ethics “to clarify roles and responsibilities” related to financial reporting.
In addition, the company said it was also implementing new training, formalizing written policies and procedures to establish responsibility for guidelines, documentation and oversight of negotiations and discussions concerning certain agreements involving the firm and identifying and evaluating the process the board uses to review, approve and authorize transactions, including share-based compensation grants.
“Management believes the foregoing efforts, once fully implemented, will effectively remediate the material weaknesses described above. However, as the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to improve controls or determine to modify the remediation plan described above,” the filing stated.
Fathom said it would not consider the material weaknesses “formally remediated” 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 filing also addressed Fathom’s “history of negative cash flow” noting that Bed Bath and Beyond has committed to providing Fathom with financial support for a year and a day after the date of the filing. The firm said that its management believes that this financial support, along with other measures will “mitigate the conditions that raised substantial doubt about the Company’s ability to continue.” In addition, Fathom said its “low-overhead business model,” as well as other programs will enable it to achieve “profitable growth in the future.”
Fathom did not return HousingWire’s request for comment.
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