Pickpocket signs & Disclosure Docs: The same outcome

Disclosure documents are the fraudulent sales agent’s best friend.

They:

  1. give the [to me, intentionally designed] false impression that some body in authority is overseeing franchising (note the federal agency’s logo, illusion of relevant information, see Robert Cialdini, Authority as “Weapon of Influence”) and
  2. identifies very efficiently and early the sucker’s major source of ignorance and fear (the obstacle the predatory member of the selling mob needs to overcome to close the sale).

Pickpocketing (or “the cannon” in professional thievery lingo) usually consists of two, three or four people working in a mob (a group of experienced specialists). It is an ancient underworld art that has been profitably practices for centuries. It relies on distraction, manual skill and very close cooperation between specialists within the criminal group.

The operation consists of 5 basic steps:

  1. Fanning: determining which pocket the wallet is in,
  2. Pratting the sucker: pushing the mark (intended victim) around gently in order to distract his attention and to get him into a good position for the next operations, (usually done by the “stall”, sometimes by faking drunkenness),
  3. Put the Duke: someone else the “hook, wire, or tool” puts their hand (“Duke”) into the victim’s pocket and removes the poke (wallet),
  4. Cleaning: the hook then transfers the wallet to another member of the mob who
  5. Stashing: takes the wallet off-site so if the next mark objects, the whole day’s take isn’t at risk.

A “Beware of Pickpockets” sign is very helpful to pickpocket professional thieves because:

…whenever a sucker sees this sign he feels the pocket in which his money is located to discover whether his pocketbook is still there, thus relieving the mob of the necessity of fanning him [see Step 1, above].

The Professional Thief: An astonishing revelation of criminal life, The University of Chicago Press, 1937

Disclosure documents assist opportunistic sales agents in a similar way. They not only trade on false authority but provide an efficient means of defining the next mark’s fears.

  • Defining a sucker’s fears goes a long way toward getting the chump to sign.

Disclosure laws have never been designed to protect potential investors and they are emphatically not a step toward Relationship Laws.

Disclosure and relationship laws are McLaws (intentionally ineffective) in protecting investors’ interests against the major ROI threat: future franchisor opportunism.

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One Response to Pickpocket signs & Disclosure Docs: The same outcome

  1. Carol Cross says:

    You are right, Les Stewart. The FTC Franchise Rule of my country, the USA, that governs disclosure by franchisors to prospective franchisees is actually a red herring that diverts the attention of the franchisee from the real risk factors of “profitability” and “failure and success” statistics of other first owners of franchises, current and past owners.

    Apparently, franchising was regulated by the federal government to achieve this goal. Isn’t the relationship of the parties also established with the pre-sale disclosure because the minimum ten-year terms of the average retail franchise agreement is a malicious legal trap that favors the franchisor who wants no changes in the terms of the relationship, and who lobbies intensely against any new laws governing franchising. .

    While “profitability” and “failure and success” on a unit basis are important risk factors, these risks do not have to be disclosed by the franchisors to new buyers of franchises, and new buyers of franchises put themselves at GREAT risk believing there will be profits and minimal risk because they are buying a “proven” plan. They are, of couse, “shocked and awed’ when their businesses fail. They don’t understand the rules of the war.

    Frachisees believe that they have been defrauded and then they have the second experience of shock when they find out that there is really no recourse for the fraud because they signed the unbargained, non-negotiable, uniform contract that was packaged with the government disclosure document —that implied legitimacy of the franchise offering and allowed the franchisor to hide these risk statistics from the new buyers.

    Franchisees have been duped because they believe that their government wouldn’t allow franchisors to sell unviable and unprofitable franchises under cover of government disclosure laws. Their attorneys, if they survive with resources to go that route, have to look for any possible breaches of the iron-clad contract because the FTC Rule appears to protect franchisors from charges of fraudulent inducement to contract/or fraudulent concealment as long as they comply with the 23 items of disclosure. Finding breaches in these contracts is an art form that apparently some attorneys have mastered but that most attorneys cannot master. Why is this? You have said, Les Stewart, that generally litigation by franchisees is like trying to revive a corpse.

    Apparently, even a violation of disclosure law doesn’t earn the franchisee the private right to recission under the law of contracts because franchise recissions are treated differently, and are negotiated to save the franchisor and the franchisees who have survived and not negotiated with any view of making the failed franchisees whole again.

    Apparently, because franchisees must incorporate themselves to do business with the franchisors, there is a loophole in securities laws that allows the courts to treat Mom and Pop franchisees as sophisticated investors, instead of unsophisticated investors, and the franchisors are not required to disclose the MATERIAL risk factors in their possession to new buyers in a timely or plain and conspicuous manner.

    Obviously, government believes that franchising as a business model cannot succeed unless the actual risk of the investment is obscured under cover of regulation from the view of prospective buyers of retail franchises.

    I’m sure that many would step forward to rationalize and justify that the end justifies the means.

    Like

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