Arthas can see one of these using the "iseedeadpeople" cheat code on an accessible island near the border of Path of the Darkness, chapter 1 of the Warcraft III Undead campaign episode 2, custom map War of the Ice. It is on the ground by a destroyed frigate, and guarded by two Bandit Lords. It can ever actually be obtained in-game in the singleplayer campaign.
In practice, Phat Lewt is used throughout the campaign as an "inventory slot filler" for non-player heroes. Phat Lewt is flagged as the most powerful item in the game despite not actually doing anything, thus AI heroes will never drop the item. Many heroes have 1 to 6 Phat Lewts in their inventories throughout the campaign, but they are always invisible to players.