The Federal Trade Commission has taken action against Qargo Coffee and its founders for violating the Franchise Rule by failing to disclose critical information to prospective franchisees, leaving them in the dark about key aspects of the franchise opportunity. The complaint alleges that Qargo and its founders failed to provide essential details in the franchise disclosure document, such as financial information and setup time, as required by the Franchise Rule. Additionally, Qargo referred to its franchisees in California as “licensees” and did not provide them with any FDD at all.
The FTC also accused Qargo and its founders of engaging in unfair practices and making misrepresentations to potential franchisees. This includes omitting information about the executives’ business history and experience, as well as providing inaccurate information about franchise startup time and bankruptcy disclosures.
As a result of these violations, the FTC has imposed a $1,258,575 judgment against Qargo and its founders. However, due to the defendants’ inability to pay the full amount, they are required to pay $30,000 with the remaining judgment suspended. The proposed order also mandates that Qargo and its founders notify franchisees of their right to rescind contracts without penalty, prohibits enforcement of noncompete agreements against franchisees who rescind contracts, and mandates compliance with the Franchise Rule, including providing FDDs to prospective franchisees.
The Commission’s decision to file the complaint and stipulated final order was unanimous, with a 5-0 vote. The matter has been filed in the U.S. District Court for the Southern District of Florida, and the stipulated final order will have the force of law once approved by the judge.
The lead attorneys on this case are Christine M. Todaro and Josh Doan in the FTC’s Bureau of Consumer Protection. This enforcement action serves as a reminder that franchise disclosure requirements must be followed to ensure transparency and fairness for prospective franchisees.
In conclusion, the FTC’s action against Qargo Coffee and its founders demonstrates the agency’s commitment to protecting entrepreneurs and small businesses from deceptive practices in the franchise industry. By holding companies and individuals accountable for violating the law, the FTC aims to create a level playing field and ensure that franchisees have access to essential information before making significant investments.
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