Franchise Fraud isn’t that complicated. It stems from an integrated network of individuals and businesses making money off of franchise sales.
Networks aren’t that difficult to understand. They’re made of of lots of people and businesses making money off the same thing, protecting each other and their money-making machine.
The problem is that the integrated network of money-makers are benefitting from deceiving the money-losers. That’s called fraud, folks.
The money-makers all want to help investors find and purchase franchise opportunities. Every franchise sale has an associated franchise fee. The franchise fees are so large that there tends to be a lot of chunks of cash floating into the hands of all of the people and businesses on the selling side of the franchise investment.
Lots of people and businesses make money and the franchiSEES who “invest” the fees (and often more!) lose money.
That means that the franchiSEES are are the losers and the franchiSORS and all of the people and businesses who help the franchiSORS sell franchises are the winners.
So who are the people and businesses making money off defrauding the franchiSEES? Who does this vast integrated network include?
Well, first off… the franchiSORS make money, of course. They get risk-free money to expand their businesses regardless of the viability of their desired expansion.
And it’s pretty clear that franchise consultants make money when a franchiSEE invests. A huge portion of a franchiSEES’ initial business investment goes straight into the franchise consultants hands. The commission is usually somewhere between 10 and 35% of the initial franchise fee.
Now, I don’t want to give you the impression that franchise consultants have it easy. They have to support people into making very risky purchases — often against the advice and will of the new franchiSEES’ families. Sure, that’s deceptive. But many franchise consultants are also wrapped up and stuck in the integrated system of fraud. They’re in danger themselves. Many of them are franchiSEES who sell franchises. Many were themselves defrauded into signing dangerous franchise agreements. They have house payments to make and families to feed. Many franchise consultants have to choose between refusing to participate in the vast integrated network and being sued by their own franchiSOR and losing everything… home, life savings, etc.
The justification that “everyone else is doing it” works pretty well considering the size of the vast network of deception. And since many franchise consultants don’t have any safe exit strategy now that they’ve signed a dangerous contract, they continue doing what they have been trained to do…. sell franchises to people who believe in the American dream.
And all the organizations that support franchise sales must also be added to the list.
That includes businesses that offer the sham “franchiSEE satisfaction awards” that are really just deceptive advertisements.
FRANCHISEE SATISFACTION AWARDS ARE DECEPTIVE ADVERTISEMENTS
And that includes associations that lobby for franchiSORS like the International Franchise Association (IFA).
The vast integrated network includes franchises and attorneys that help new franchiSORS get into franchising. These people assist the new franchiSORS as they write up less-than-honest FDDs and prepare unjust contracts that will ensure the franchiSORS can use the franchiSEES’ money risk free.
The vast integrated network includes all the attorneys who represent franchiSORS and who know very well that their franchiSOR clients are being far from honest, lied to the franchiSEES before the franchiSEES signed the contracts, used deceptive advertising (like the sham franchisee satisfaction awards), and who are now helping the franchiSORS aggressively sue franchiSEES to take their life savings and drive them to bankruptcy. These corrupt attorneys successfully compartmentalize their work, justifying what they’re doing based on the notion that the “law must be upheld” and the “franchiSEE signed the dangerous contract after all.” “That’s the law.”
WHY FRANCHISORS WIN IN COURT:
Please note that aggressively using civil process against a fraud victim as a component of fraud (the way franchiSORS systematically use it) is far different than working to defend someone from state prosecutors. The former is corruption and is an act complicit with the fraud, the latter is maintaining the integrity of the law and due process. But the corrupt attorneys who help franchiSORS still seem to find a way to feel okay about what they’re doing. Homelessness and despair ride in their wake, but they somehow consistently justify continuing on in their actions.
And the vast integrated network even includes businesses that exist to help potential new franchiSEES sort through the seemingly infinite (in the Internet age) hodgepodge of franchise opportunities available online.
Many many individuals and organizations are tied up in the vast and integrated network of profiting off of franchiSEE investments.
And these individuals and organizations have the money to control the conversation.
As a person with a background in psychology, I’m a bit more than fascinated by the common language that is repeated again and again by these money-makers who control the conversation.
Over and over again I hear people who are making money off this vast integrated network say things like:
- “FranchiSEES who get burned didn’t do their research well enough.” (This is called blaming the victim)
- “It’s not fair to group all the ‘good franchiSORS‘ in with the bad ones.” (This is denying the reality that there is a power imbalance in a high majority of franchise relationships and that, AFAIK, no franchiSORS are supporting legislation like the Fair Franchise Act.
- “None of the franchiSORS I work with are part of the problem.” (When in fact the franchiSORS they’re working with are part of the problem, the fraud is endemic and, AFAIK, none of the franchiSORS are supporting legislation that would end the problem.)
- “All of the franchiSORS I work with are honest.” (When in fact they are making money off of helping franchiSORS commit the fraud.)
It’s tough to end fraud that is supported by such a vast integrated network of people and businesses making money. The people who are pulling money in aren’t likely to let go of their scheme easily. They’re not likely to stand up to defend the system as a whole by supporting legislation and regulations that would clean up the fraud. To do so would dry up a lot of the money they’re using to succeed and why should they do more than give lip service to industry ethics and viability when nobody else is.
It’s not as if the franchiSORS don’t know how to -say- the right thing.
But actions speak more loudly than words.
In my opinion, ending the problem is going to require franchiSEES leaking evidence to the press and the involvement of newspapers like The New York Times. I hope the franchiSORS don’t have as many connections with the press as they have in Congress.