The Federal Trade Commission has filed suit against fast-food chain Burgerim, accusing the chain and its owner, Oren Loni, of enticing more than 1,500 consumers to purchase franchises using false promises while withholding information required by the Franchise Rule.
In a complaint filed on the FTC’s behalf by the Department of Justice, the FTC alleges that Burgerim and Loni recruited potential franchisees by pitching the opportunity as “a business in a box,” that required little to no business experience, downplaying the complexity of owning and operating a restaurant. According to the complaint, many consumers paid Burgerim between $50,000 and $70,000 in franchise fees, and the company targeted veterans with discount programs to lure them into the business. The complaint also alleges that although BurgerIM pocketed tens of millions of dollars in such fees, the majority of the people who paid them were never able to open restaurants.
In targeting consumers with these pitches, the FTC alleges, Burgerim offered assurances that if a franchisee was unable to open a restaurant, that the company would refund the franchise fee. The company’s promised refunds often proved to be an illusion. According to the complaint, some franchisees were unable to get refunds from Burgerim even after months of making requests, leaving franchisees facing losses or debt of tens of thousands of dollars each.
“Burgerim promised consumers, including veterans, the American dream, only to leave them in a nightmare of debt and deceit,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “For other franchisees facing predatory practices, we are making it easier for them to tell us about what happened. Visit ReportFraud.FTC.gov and file a report to help us root out deception and other illegal conduct in the franchise industry.”
The complaint in the case alleges that Burgerim, in addition to making false promises about refunds, failed to make legally required disclosures to their potential buyers as required by the FTC’s Franchise Rule.
The Franchise Rule requires franchisors to provide prospective franchisees with material information they need when weighing the risks and benefits of purchasing a franchise, including a Franchise Disclosure Document, which includes specified information about the franchisor, the franchise business, and the terms of the franchise agreement. The complaint alleges that, among other things, Burgerim and Loni failed to provide accurate information about the refundability of franchise fees and required information about current and former franchisees.
The complaint asks the court to stop Burgerim and Loni’s violations, provide monetary and other relief and impose civil penalties on the defendants. The Franchise Rule carries a potential civil penalty of up to $46,517 for each violation of the Rule.
The FTC thanks the California Department of Financial Protection and Innovation and the Office of the Maryland Attorney General for their assistance in this case.
The FTC has added a new reporting option specifically related to franchises where consumers can report unlawful practices by franchisors. Consumers can file these reports with the FTC at ReportFraud.ftc.gov, clicking “Report Now” and following the prompts provided.
The Commission vote to refer the civil penalty complaint to the DOJ for filing was 4-0. The Department of Justice filed the complaint on behalf of the Commission in the U.S. District Court for the Central District of California.
NOTE: The Commission refers a complaint for civil penalties to the DOJ for filing when it has “reason to believe” that the named defendants are violating or are about to violate the law and that a proceeding is in the public interest. The case will be decided by the court.
The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.