CALABASAS, Calif. (KNX) — A Calabasas-based fast-food chain of restaurants and its owner have been sued by the Federal Trade Commission for allegedly pocketing tens of millions of dollars from more than 1,500 people lured into buying failing franchises.
The FTC alleged the Burgerim chain and owner Oren Loni recruited franchisees by exaggerating the potential for profit and minimizing the difficulty of successfully running a restaurant.
“Burgerim promised consumers, including veterans, the American dream, only to leave them in a nightmare of debt and deceit,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement on Tuesday.
The FTC has asked a federal court in L.A. County to impose civil penalties of up to $46,517 for each violation.
Potential franchisees allegedly paid Burgerim between $50,000 and $70,000 for single franchise locations and received discounts to purchase additional franchises at $40,000 each. Many took out loans from the U.S. Small Business Administration or banks to pay franchise fees, according to the FTC.
“Defendants sold more than 1,500 Burgerim franchises, but the overwhelming majority of Burgerim franchises never got their businesses off the ground,” the FTC alleged. “Hundreds sought to cancel their franchise agreements.”
The fees gave franchisees the legal right to establish and run a Burgerim restaurant. But they did not include certain essential costs, such as renting a location, construction, equipment purchases, and buying products and supplies, all of which the FTC estimated to total more than $600,000.
“Defendants control the franchise operations by, among other things, approving sites for Burgerim restaurant locations, imposing building design specifications, and requiring franchisees to sell specific items, use certain equipment, and purchase only approved product and supplies,” the FTC contended.
The agency claimed Burgerim falsely represented it would help franchisees navigate all steps of the restaurant opening process. It also allegedly falsely represented that if franchisees were unable to secure a location or obtain additional financing, their franchise fees would be returned.
But Burgerim failed to provide those refunds in many cases, the FTC alleged.
“For many franchisees who paid franchise fees to Burgerim, defendants’ promises were illusory,” the FTC said.
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