The Federal Trade Commission (FTC) has initiated action against Qargo Coffee and its founders for not disclosing essential information required by the Franchise Rule. This includes a founder's connection to the burger franchise BurgerIM, which left potential franchisees uninformed about crucial investment details.
According to the FTC's complaint, Qargo and its founders, Mark Bastorous, Bernadette Bastorous, and Samir Shenouda, breached the Franchise Rule. This is the second case in recent years where such violations have been alleged by the agency.
"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," stated FTC Chair Lina M. Khan. "The FTC will continue using all its tools to ensure that franchisees, small businesses, and entrepreneurs can get a fair shot."
The complaint highlights that since May 2020, Qargo's founders have offered coffee shop franchises nationwide without providing prospective franchisees with necessary information in their Franchise Disclosure Document (FDD). The FTC also claimed that Qargo labeled its California franchisees as "licensees" and did not provide them with any FDD.
Furthermore, it was alleged that Qargo and its founders engaged in unfair practices under the FTC Act by omitting critical business history of executives and misrepresenting startup timelines for franchises. They also failed to disclose any bankruptcies when required.
A proposed order against Qargo imposes a $1,258,575 judgment. Due to defendants' inability to pay this amount fully, they are required to pay $30,000 while suspending the rest of the judgment. The order mandates:
- Written notice from Qargo informing franchisees of their right to rescind contracts without penalty.
- Prohibition on enforcing noncompete agreements against those who rescind contracts.
- A ban on making misleading statements or omissions material to prospective franchisees.
- Compliance with providing FDDs as per Franchise Rule requirements.
The Commission voted unanimously (5-0) authorizing staff filing of both complaint and stipulated final order in U.S. District Court for Southern District of Florida.
It should be noted that complaints are filed when there is "reason to believe" law violations are occurring or imminent; stipulated orders gain legal force upon court approval.
FTC’s lead attorneys on this matter include Christine M. Todaro and Josh Doan from Bureau of Consumer Protection.
The Federal Trade Commission aims at promoting competition while protecting consumers through education efforts. It does not demand money transfers or make threats but provides resources at consumer.ftc.gov for learning more about consumer topics or reporting fraud via ReportFraud.ftc.gov.
