The FTC also accused Qargo and its founders of unfair practices and misrepresentations, including omitting key details about the executives’ business history and experience, as well as misleading potential franchisees about startup timelines and undisclosed bankruptcies.
The Federal Trade Commission (FTC) has filed a complaint against Qargo Coffee and its founders for failing to disclose essential information required under the Franchise Rule. This oversight has left potential franchisees uninformed when considering their investment in the coffee shop franchise.
According to the FTC, founders Mark Bastorous, Bernadette Bastorous, and Samir Shenouda violated the Franchise Rule, marking the agency’s second case in recent years concerning such violations. “Before franchisees take on the risk and investment of starting a business, they deserve to know basic information about the opportunity upfront,” stated FTC Chair Lina M. Khan. “The FTC will continue to use all its tools to ensure that franchisees, small businesses, and entrepreneurs can get a fair shot.”
Since launching in May 2020, Qargo Coffee has expanded its franchise offerings nationwide. However, the complaint alleges that the founders did not provide vital information in the franchise disclosure document (FDD) that franchisees need to assess the risks and benefits of the investment. Furthermore, Qargo referred to its franchisees in California as “licensees” and entirely failed to provide any FDD to those prospects.
The FTC also accused Qargo and its founders of unfair practices and misrepresentations, including omitting key details about the executives’ business history and experience, as well as misleading potential franchisees about startup timelines and undisclosed bankruptcies.
The proposed order against Qargo and its founders includes a judgment of $1,258,575. However, due to the defendants’ inability to pay the full amount, they are required to pay $30,000, with the remaining judgment suspended. The order mandates that:
– Qargo and its founders must notify franchisees of their right to rescind contracts without penalty.
– They are prohibited from enforcing noncompete agreements against any franchisee who rescinds their contract.
– They must refrain from making misrepresentations or omissions of material facts to prospective franchisees.
– They must comply with the Franchise Rule, including providing proper FDDs to potential franchisees.
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