Simply because a franchise has hundreds of franchisees, is well funded, and has a large number of employees doesn’t mean that they are above committing franchise fraud. As a matter of fact, most fraud occurs at a level higher than the fly-by-night franchise operators. Sometimes serious franchise fraud is committed by those you’d least expect, established companies with a reputation for quality and honesty.
For example, On July 27, 2017, Christopher M. Swartz, former owner of Jreck Subs, was sentenced to 12 1/2 years in prison for defrauding franchise investors and the Internal Revenue Service to the tune of over $9 million. Swartz plead guilty to tax evasion, wire fraud, and making false and misleading statements to potential franchise investors and bank lenders. Since 1974 Jreck subs have opened over 40 sandwich restaurants throughout Northern and Central New York and have plans for further expansion.
A few weeks earlier, wildly popular restaurant franchise chain TGI Friday’s Guam business manager was indicted for tax fraud for under-reporting hundreds of thousands of dollars in wait staff tips. www.pacificnewscenter.com reports that “Business Director Lerma G. Aquino (was charged) with the corrupt endeavor to obstruct or impede the due administration of the internal revenue laws.” Friday’s restaurants are known for their “endless happy hour” theme of serving alcohol and bar food and operate over 900 restaurants in 60 countries.
People around the world are aware of the employee wage fraud scandal that continues to plague franchise giants 7-Eleven, Domino’s Pizza, Caltex and others. These franchises are accused of allowing franchisees to pay workers the minimum wage on the books only to demand “cash-back” kick backs or face being fired. In a disturbing majority of the cases, these extorted low-income workers are immigrants working in a new and foreign land and were threatened with deportation if they failed to comply. In some cases, the families of immigrant employees back in their home countries were threatened with physical harm if they did not hand over a large portion of their wages back to the franchisee.
As you can see, large brand name franchise companies are not above the law and need to be monitored constantly to ensure that they do not commit fraud or threaten the welfare of their employees. Franchise attorney Mario L. Herman stays abreast of legal developments in the franchise industry and advises clients of the latest news that could affect their investment decisions.
