California-based Burgerim allegedly duped franchisees, pocketed millions

Calabasas fast-food chain Burgerim and its owner allegedly pocketed tens of millions of dollars from more than 1,500 individuals enticed to purchase franchises with false promises that destined most of them to fail, the Federal Trade Commission said Tuesday.

The FTC alleges in a federal lawsuit that Burgerim and owner Oren Loni recruited potential franchisees for an opportunity that purportedly required little to no business experience, while downplaying the complexities of owning and operating a burger restaurant.

“Burgerim promised consumers, including veterans, the American dream, only to leave them in a nightmare of debt and deceit,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement.

The complaint asks the court to stop the defendants’ alleged actions and impose civil penalties of up to $46,517 for each violation.

Burgerim officials did not respond to emails and phone calls Tuesday seeking comment. The company operates in 15 states and was projected to have 500 restaurants by 2019, according to its website.

However, many Burgerim locations have since closed, according to news reports.

In many instances, individuals allegedly paid Burgerim $50,000 to $70,000 for a single franchise location and received discounted incentives to purchase additional franchises at $40,000 each.

“Defendants sold more than 1,500 Burgerim franchises, but the overwhelming majority of Burgerim franchisees never got their businesses off the ground,” the suit says. “Hundreds sought to cancel their franchise agreements.”

Many prospective franchisees have taken out loans from the Small Business Administration or commercial lenders to pay Burgerim franchise fees, according to the FTC.

The fees purportedly gave franchisees the right to establish and operate a Burgerim restaurant, the FTC said. However, they didn’t include other costs such as securing a location, construction of the restaurant, equipment, and obtaining products and supplies, all of which are estimated to total more than $600,000, the suit says.

“Defendants control the franchise operations by, among other things, approving sites for Burgerim restaurant locations, imposing building design specifications, and requiring franchisees to sell specific items, use certain equipment, and purchase only approved products and supplies,” the complaint states.

Burgerim, anticipating that inexperienced franchisees may be intimidated by the process, falsely represents it will assist them every step of the way, the lawsuit alleges.

“All you need is the will to succeed,” the company’s website promises. “Our international fast food franchising team paves the way for you to become a thriving business owner.”

Further downplaying the financial risks, Burgerim allegedly represented to prospective and existing franchisees that if they are unable to secure a restaurant location or obtain financing, their franchise fees would be refunded in exchange for not disparaging the company.

In many cases, Burgerim did not provide refunds to franchisees, including those who had a signed letter from Loni promising they would get their money back, according to the suit.

“For many franchisees who paid franchise fees to Burgerim, defendants’ promises were illusory,” the FTC said.