WASHINGTON, D.C. — The Federal Trade Commission (FTC) has launched legal proceedings against Qargo Coffee and its founders, citing significant breaches of the Franchise Rule. The action highlights the FTC’s commitment to ensuring transparency and fairness in franchise operations, safeguarding prospective franchisees from misleading business practices.
The complaint, filed by the FTC, alleges that Qargo Coffee and founders Mark Bastorous, Bernadette Bastorous, and Samir Shenouda failed to provide essential information to potential investors. This omission pertains to critical franchise disclosures, including one founder’s previous association with the troubled BurgerIM franchise. Such information is vital for individuals assessing the financial and operational risks associated with investing in a franchise.
FTC Chair Lina M. Khan emphasized the necessity for transparency, stating, “Before franchisees take on the risk and investment of starting a business, they deserve to know basic information about the opportunity upfront—from the franchise’s overall financial health to the time it would take to set up shop.”
According to the FTC, since May 2020, Qargo Coffee has been promoting its coffee shop franchise across the United States. However, the company reportedly failed to meet the Franchise Rule’s requirements by not providing a comprehensive franchise disclosure document (FDD) to prospective buyers. This document should include crucial details about the franchise’s business model, financial health, and any potential risks.
The complaint further alleges that Qargo misrepresented its franchise model to California investors by labeling them as “licensees” and withholding the necessary FDD entirely. Additionally, Qargo is accused of misleading prospective franchisees with omissions about the executive team’s business history and misstatements regarding the startup timeline and any pertinent bankruptcy disclosures.
The proposed legal order against Qargo and its founders demands a monetary judgment of $1,258,575. However, due to the defendants’ reported inability to pay the full amount, the order stipulates a reduced payment of $30,000, with the remainder suspended. The order also mandates:
- Notification of franchisees and licensees about their right to rescind contracts without penalty.
- Prohibition of enforcing noncompete clauses against those opting to rescind contracts.
- A ban on misrepresentations and deceptive omissions in communications with potential franchisees.
- Compliance with the Franchise Rule, including the provision of accurate franchise disclosure documents.
The Commission unanimously voted 5-0 to authorize the staff to file the complaint and the stipulated final order. The FTC subsequently submitted the complaint and final order to the U.S. District Court for the Southern District of Florida.
For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and MSN.