Burgerim, once one of the fastest-growing restaurant chains in the U.S., has faced a major collapse due to a lawsuit from the U.S. Federal Trade Commission. The franchise and its founder, Oren Loni, are now banned from selling franchises in the U.S. ever again. The lawsuit accused Burgerim of misleading over 1,500 prospective franchisees between 2015 and 2019, resulting in monetary awards and penalties totaling $56 million. Loni settled the lawsuit by agreeing to pay a $5 million civil penalty and $38.8 million for consumer redress. Despite this, Loni only had to pay $1,000 upfront, with the rest of the penalties suspended pending further investigation.
The tactics used by Burgerim to sell franchises were deemed aggressive and misleading, with would-be operators being convinced to pay high franchise fees without adequate disclosure of risks and financial information. Many franchisees faced financial difficulties and closures, with some even losing their homes after defaulting on loans taken to open their Burgerim locations. The collapse of Burgerim highlights the lack of enforcement in the franchise industry when companies break rules, as well as the importance of due diligence before investing in any franchise opportunity.
While Burgerim’s website no longer accepts franchise applications, the company continues to operate several dozen units across the country. The FTC is seeking a $7.75 million civil penalty against Burgerim and $48.7 million in monetary penalties to compensate prospective franchisees for the estimated funds taken by the company. The fallout from Burgerim’s collapse serves as a cautionary tale for potential franchise operators, emphasizing the need to thoroughly research and understand the risks involved before investing in any franchise opportunity.
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