Fathom Holdings flags financial control failures linked to former CEOs and side deal

Fathom Holdings has disclosed potential "material misstatements" in its previous financial reports, attributing the issues to the actions of former chief executive officers and an undisclosed side agreement. In a filing with the Securities and Exchange Commission regarding its first-quarter 2026 financial results, the company stated that its financial reporting disclosure controls and procedures were ineffective due to "material weaknesses."

These weaknesses were linked to former CEO Joshua Harley and Marco Fregenal, who served as CFO before becoming CEO in 2023. Fathom stated that the "tone at the top" set by these former executives was insufficient to establish an effective internal control environment.

The primary factor cited for the financial reporting issues stems from a "side agreement" negotiated in 2021 by Harley and Fregenal. This agreement allegedly bound Fathom without the board's knowledge or authorization. The board discovered the deal in April of the current year and concluded it is not binding and had no material effect on financial information.

Marco Fregenal was terminated as CEO in June 2026 in connection with Fathom's acquisition by Bed Bath and Beyond, with the firm citing unspecified policy violations. Adam Rothstein has been named the current interim CEO.

Fathom is implementing a remediation plan that includes appointing new leadership, reviewing its Code of Ethics, and enhancing training and policies related to financial reporting and transaction approvals. The company stated that management believes these efforts will effectively remediate the material weaknesses, though formal remediation will require controls to operate effectively over a sufficient period.

The filing also noted Fathom's "history of negative cash flow," but indicated that financial support from Bed Bath and Beyond for a year post-filing, along with its "low-overhead business model," will mitigate concerns about the company's ability to continue and enable profitable growth.