The Calabasas Burgerim fast food chain and its owner allegedly pocketed tens of millions of dollars from more than 1,500 people tricked into buying franchises with false promises that were mostly doomed to failure, it said on Tuesday. the Federal Trade Commission.
The FTC alleges in a federal lawsuit that Burgerim and owner Oren Loni recruited potential franchisees for an opportunity that apparently required little or no business experience, while downplaying the complexities of owning and operating a franchise. a hamburger restaurant.
“Burgerim promised consumers, including veterans, the American dream only to leave them in a nightmare of debt and deception,” Samuel Levine, director of the FTC’s Consumer Protection Bureau, said in a statement. .
The complaint asks the court to stop the defendants’ alleged actions and impose civil penalties of up to $46,517 for each violation.
Burgerim officials did not respond to emails and phone calls Tuesday seeking comment. The company operates in 15 states and is expected to have 500 restaurants by 2019, according to its website.
However, many Burgerim locations have since closed, according to dispatches
In many cases, individuals reportedly paid Burgerim between $50,000 and $70,000 for a single franchise location and received discounted incentives to purchase additional franchises at $40,000 each.
“The defendants sold more than 1,500 Burgerim franchises, but the overwhelming majority of Burgerim franchisees never started their businesses,” the lawsuit states. “Hundreds have sought to rescind their franchise agreements.”
According to the FTC, many potential franchisees took out loans from the Small Business Administration or commercial lenders to pay Burgerim’s franchise fees.
The fee would have given franchisees the right to establish and operate a Burgerim restaurant, the FTC said. However, they did not include other costs such as securing a location, building the restaurant, equipping and obtaining products and supplies, all of which are estimated to be over $600,000. according to the lawsuit.
“Defendants control franchise operations by, among other things, approving Burgerim restaurant locations, imposing building design specifications, and requiring franchisees to sell specific items, use certain equipment, and purchase only approved products and supplies,” the complaint reads.
Burgerim, anticipating that inexperienced franchisees might be intimidated by the process, falsely claims it will help them every step of the way, according to the lawsuit.
“All you need is the will to succeed,” the company’s website promises. “Our international fast food franchise team paves the way for you to become a successful business owner.”
Further minimizing financial risk, Burgerim reportedly represented to potential and existing franchisees that if they were unable to secure a restaurant location or obtain financing, their franchise fees would be reimbursed in exchange for not disparaging the business.
In many cases, Burgerim failed to reimburse franchisees, including those who had a signed letter from Loni promising they would get their money back, according to the lawsuit.
“For many franchisees who paid franchise fees to Burgerim, defendants’ promises were illusory,” the FTC said.