Advance fee Scams: Money upfront for Nothing

September 15, 2008

Franchising is like an Advance fee scam but with benefits.

  • Most new franchise offerings take not only what you put on the table, now, but your labour, your future earnings and much more cash than you ever dreamed of putting in.
  • And not only yours. Mom and pop scammers are happy to take your spouse’s and family’s money too.

A good little bit by Jack Payne over at Con Man’s Blog that defines an advance fee scam.

Simply put, advance fee scams are when:

…the victim pays his hard-earned money to con men in anticipation of receiving a product or service of greater value–such as a contract, loan, investment, or gift. Then in a big majority of cases, receives nothing in return.

The problem with these scams is that they are usually totally legal:

To get his advance fee returned to him, the burden of proof falls on himself (the victim), who must prove that no meaningful services were performed, or product delivered, on his behalf, or for his benefit, by the con man. This is frequently a difficult undertaking. Finder’s, keepers. Losers, sleepers.

There are lots of legitimate businesses that require a down payment and it is very difficult at times to filter out the scammers.

And, as is often the case, the important points come out in the comments:

Warren M said…That burden of proof thing is a killer. The victim starts out behind the eight ball.

The money is gone. For good.

  • Taking legal action only enables the franchise bar  who acts as Big Franchising‘s Waffen-SS: they will kill you economically with the lawsuits.

Waffen-SS:

Advertisements

Suing franchisees will Learn what the word Farce means

September 7, 2008

Ever wonder why there are so many unhappy lawyers? The best bit is at 7:37.

“Stringing a case out”.

  • Wondered why everyone says: “Better talk to a lawyer specializing in franchise law?
  • Because you do not know if you have a good case [law services are a credence good] you can easily be convinced that there is no hope or, taken on as a client until your cash flow ends and then discarded.

The Franchise Bar controls access to the Courts and routinely sabotages perfectly good cases. This is especially true in the smaller markets such as Canada, Australia and New Zealand. I have seen it dozens of times.

  • The law has been bought and paid for by Big Franchising but this is not such an unusual situation in public administration.

Franchisees who want to sue their franchisor will likely never see the inside of a Court. You should go to a civil court and find out how much of a joke it is. I love the law but dislike the practice of law very much.

  • There is no excuse for looking to the law for help: Franchisees and ex-Ees need to rely on themselves.

Is Blue MauMau crooked?

September 6, 2008

This is a very good question. And I admit I do not know the answer.

Here is a video that proves a description of bluemaumau.org‘s  stated mission. Take a look at the video an then the site (over some time) and see if they’re “walking the talk”.

I know that I am not in the inner circle of BMM experts and that they converse quite regularly offline.

  • Internet information sharing is a very large concern for Big Franchising. The point men are the Franchise Bar and especially the  self-appointed Alpha Male franchise lawyer.

They are extremely sensitive about their image. Try showing up to one of their trade shows with a national television network film crew. The industry has very long memories and insists on everyone goosestepping to the same beat.

I see no reason why BMM should be given a pass.

There have been other websites before that tried to be independent but found it economically impossible to do so. It’s called being black-balled, folks. Same goes for journalists.

Any questions and it’s called a CLM (career limiting move). The tactics are the same as those used by Big Tobacco.

  • The franchise industry is well-known for punishing anyone that raises too many questions or interferes in any way with their selling efforts (ie. sue advocates into bankruptcy, withhold referrals or destroy careers).
  • On the surface, anyway, this would make BMM Public Enemy #1.

And even if Blue MauMau was doing the staus quo’s bidding (breeds disinformation and confusion, public flogging of irrelevant small-time weasels), does it really matter?

  • My experience is that what is going to happen, is going to happen. The mechanics are bigger than any rear-guard defence strategy.

Either way,  some valuable lessons can be learned but I should caution: The greatest lies are always told in silence.

In big industry new ideas are invited to rear their heads so they can be clobbered at once. The idea department of a big firm is a sort of lab for isolating dangerous viruses.
Marshall McLuhan

People need to think of themselves as unmanaged, independent and free, if they are to be controlled with maximum success.
John Kenneth Galbraith

These capitalists generally act harmoniously and in concert, to fleece the people.
Abraham Lincoln [discharged bankrupt shopkeeper]


A Rare and useful Gripe Site model

September 2, 2008

Anthony’s Franchise Information is a very instructive website for several reasons.

1. It shows how frequently a franchisor will start with one system (3 for 1 Pizza and Wings) and then branch out to other ones (Pizza One, Anthony’s Pizza Uno and Anthony’s Kitchen) once things become a little too “complicated”.

Changing countries and having your mother own the new corporate entities is a nifty way to dodge franchise law obligations. While it may no be legal, it is up to the usually broke future franchisees to prove a wrongdoing has happened. Chance of that happening: slim to none.

2. Just look at the string of Court decisions and unfulfilled awards against Mr. Reza (above, aka Anthony)  Solhi.

There is a lesson to be had here: Go ahead and sue and then try to collect your award. You frequently can’t. Often the assets have left the building way before the always-appealed trial decision is handed down.

3. Notice how there has been national television and newspaper coverage, even with a two part investigative coverage from the award-winning CTV W5 program (Taking your Dough)?

  • Think that a lot of publicity will make the bottom-feeders pay? Think again.
  • Think the “blue chip” systems will give up the slimiest? Think again: They both share the same group of invisible friends.
  • Think if they only knew they’d do something? Think again.

4. Read the Petition Narratives. These all represent new Canadian families that thought Canada was an advanced western democracy that protected its citizens. I hope they realize that all franchises have this potential. These guys were just impatient.

5. This is a very clear, concise and well-documented picture of 1 of the 1,200 franchise systems in Canada. It is only still up on the internet because the franchisor has not funded an aggressive litigation attack on the people that wrote it.

A more reputable or blue chip system would have served papers within 2 days and driven them all into bankruptcy to teach them a lesson. Standard operating procedure when the Franchise Bar runs the industry’s protection racket.

6. I like the inclusion of Known Associates. That name Nigel Mayne rings a bell but I can’t for the life of me remember why. Anybody in cyperspace help me out here?

7. How unwilling the Ontario government is willing to even look at revising the toothless Arthur Wishart Act (Franchise Disclosure), 2000 law. I know of and have met Minister Phillips and he is personally a man of extremely high character. As a cabinet member, however, he must toe the government’s policy.

  • If the Ontario and Canadian government will so blatantly block for the sleaziest of the franchise industry, what makes you think any other country is to do anything other than pay lip service to franchise investors?
  • Political stripe and jurisdiction are immaterial. As individuals, I know politicians and civil servants find defending a turd to be distasteful but they have no choice: It’s about Big Franchising‘s influence.

Franchisees would have to MATCH the combined political clout (investment, jobs) of all the automotive manufacturers, the national grocery chains, petroleum companies, product franchisors, largest law firms, financial institutions, etc. to have a fair fight at a real franchise law.

  • Yes, the truth has some weight. But often power defines what is true in a real politics.
  • The trick is not to give up but to resist in a more effective way.

Oz FCA franchisor and bank Linked in a Conspiracy?

September 2, 2008

In yesterday’s House of Representatives, Australian member of parliament Joanna Nash (Lib, Gilmore) read the following statement into the record:

In closing I would like to read into the record three succinct extracts from emails in regard to Baker’s Delight, and these can be produced.

The first is from Richard Taylor, Chief Financial Officer of Bakers Delight, to Simon Brookhouse, the Victorian and Tasmanian franchise manager for the ANZ Bank, dated 22 February 2005 in regard to Ms Deanne DeLeeuw who was still an active franchisee at the time. It read:

The South Coast bakeries group heads closer and closer to oblivion.
Is that not evidence that suggests plans had been conspired to terminate Ms DeLeeuw’s franchise well ahead of time?

The second email is from Jurgen Schnabel, Senior Manager of the ANZ Bank, in an email dated 10 March 2005. He wrote:
… we will accept whatever Bakers Delight decides to give us from the sale of Kiama and Vincentia, without question.
Does this not constitute some degree of collusion towards the premature but planned demise of this franchisee?

And finally:
… we have to consider the greater relationship with Bakers Delight given our overall exposure to this group within PM.
That was in an email from Simon Brookhouse of the ANZ Bank dated 10 March 2005. This was when the ANZ agreed to accept a nil return from Bakers Delight for the Shellharbour franchise.

These allegations have not been proven in a court of law.

  • Baker’s Delight is a member of the Franchise Council of Australia, FCA.
  • ANZ Bank is a member of the Franchise Council of Australia, FCA.

There is a very close relationship between franchisors and lending institutions in Canada (see Big Franchising, Red Flags: Predatory franchise lending, Suing a Bank (2)).


Credence Goods attract Experts who Cheat

August 27, 2008

If I had to choose the second concept that was critical to know in the study of franchising, it would be This one.

Lionel Hutz

HINT: If they’re talking about protecting franchisees and not talking about credence goods, they’re all hat and no cattle [all show and no go].

Some goods and services, by their very nature, come with much higher risks than others. These risks can be compounded and therefore astronomically high if:

  • there are few experts to choose from in a market,
  • the costs of switching experts is very high,
  • this is the first time you have contracted for these expert services, and
  • the experts organize themselves to protect one another.

As we shall see, franchising has compounded, interdependent and very aggressive expert stakeholders [see Big Franchising: franchisors, franchise bar, lenders, sales agents, consultants, politicians, media, etc].

  • As a franchise investor, you are at a severe disadvantage because of credence good service providers.

A Credence good is a good or services with the following 3 characteristics:

  1. the value is difficult or impossible for the buyer to determine accurately before they buy it,
  2. the buyer can’t know if it was useful [even after they did buy it] and
  3. also, the seller does know the value of #1 and #2 [could therefore exploit this ignorance for their own self-interest: information asymmetry leads to opportunism risk]. Wikipedia

Uwe Dulleck and Rudolf Kerschbamer:

Consumers’ concerns about being defrauded seem not to be unfounded: Emons (1997) cites a Swiss study reporting that the average person’s probability of receiving one of seven major surgical interventions is one third that of a physician or a member of a physician’s family. Wolinsky (1993, 1995) refers to a survey conducted by the Department of Transportation estimating that more than half of auto repairs are unnecessary…These examples reveal that infomational asymmetry matters. Free download: On Doctors, Mechanics and Computer Specialists – The Economics of Credence Goods

Gillian K. Hadfield, University of Southern California:

Economists refer to a good as a credence good if it is provided by an expert who also determines the buyer’s needs. Buyers of credence goods are unable to assess how much of the good or service they in fact need; nor can they assess whether or not the service was performed or how well. This puts buyers at risk of opportunistic behavior on the part of sellers: they may be sold too much of a service or billed for services not performed or performed poorly. Theoretical work on markets for credence goods predicts that markets for credence goods may be characterized by fraud (billing for unnecessary services or services not performed) and a price mark-up over cost…Legal services are credence goods… Free download: The Price of Law: How the Market for Lawyers Distorts the Justice System

Winand Emons, University of Bern:

With a credence good, consumers are never sure about the extent of the good that they actually need. Experts such as doctors and lawyers, as well as auto mechanics and appliance service-persons (the sellers) not only provide the services, but also act as the expert in determining the customer’s requirements. This information asymmetry between buyers and the seller creates strong incentives for the seller to cheat. Free dowload: Credence Good Monopolists

We will come back to credence goods and how these types of services really help value being stripped from investors with deceit [opportunism].


Blocking for the franchise industry

August 26, 2008

As a boy I read a book called Instant Replay by a football player called Jerry Kramer (see #64, left). This is an intelligent look into professional sports by an insider warrior.

Kramer was an offensive lineman with the National Football League‘s (NFL) Green Bay Packers from 1958 to 1968. He won 5 championship titles and 2 Super Bowls, was named to the All-Pro team 5 times and selected as the only guard to the NFL’s 50th Anniversary All-Time team.

This photograph shows Kramer leading fullback Jim Taylor in one of Vince Lombardi’s devastating signature plays called The Packers Sweep:

A sweep is a running play in American Football where the running back takes a pitch or handoff from the quarterback and starts running parallel to the line of scrimmage, allowing for the offensive linemen and fullback to get in front of him to block defenders before he turns upfield. Wikipedia

Until I read Kramer’s book, I did not appreciate the practice, precision, discipline and controlled violence that goes into executing this “ballet of titans”.

The analogy holds for franchising.

  • Business format franchising (visibly manifested as the national trade association) advances their interests using their largely unseen teammates strengths and contributions.
  • Big Franchising steamrollers over their opponents with the finesse, power and drive of a champion football team.

When the public screams get too loud, Big Franchising relies on their friends in the political process to help them. Their “behind-the-scenes” influence is on visible display in Australia and New Zealand now.

You know perfectly well how the play runs.

  • Yes, the spoils accrue to the victor.
  • Yes, the passing of a useless McLaw will be the result.
  • Yes, this will convince some people that franchising is “safe” now.

But you can’t stuff this genie back into the bottle, folks. Too many people have had the experience, they’re learning fast in how to make the links and the internet provides the conduit for accurate risk assessment information sharing.

  • History shows financial bubbles do not slowly deflate: They fly-apart with great violence and with much loss to innocent parties.

Think a Franchisor took your money improperly?

August 22, 2008

Juan Medina/REUTERS

Why not contract with someone to shame them into giving your money back?

The Globe and Mail has as an interesting article called Dressed to embarass: Spanish collection agency sends out men in top hats and tails to humilate debtors into paying up.

It seems a collection agency with over 600 employees in Spain and Portugal called El Cobrador del Frac (English: The Debt Collector in Top Hat and Tails) collects about 70 per cent of the debts they buy at a discount from individuals and businesses

“We send collectors in uniform and collectors without uniform. It depends on how the debtor reacts. If we need to do it to collect a debt, we send a collector wearing top hat and tails, so his debt attracts more attention,” he said.

They first start with a telephone call, a facsimile and only resort to sending someone out when there is a refusal to settle.

The agency swears that they always stay within the limits of the law but that does not stop them from being very creative.

For example:

…seeking to reclaim a large debt for an unpaid wedding banquet, the company even resorted to phoning guests who had attended to demand they pay their share of the bill. The red-faced bride and groom soon coughed up…

My oh My…isn’t his a clever idea for a way to raise funds for a national franchisee association? Or the next big thing as a franchise concept?

  • “Buy” franchisee debt and collect from their franchisors.

Lots of possibilities here, folks:

Q: “Why does that man in the funny hat keep following us?”

A: “Don’t worry, son. He’s just been sent from a loser, m—–f—-r franchisee.”

Q: “Daddy, what’s a m—–f—-r?”

A: …

It seems using shame is a very old Spanish tradition in debt collection. They will simply follow around the president of the company for as long as it takes: as he lines up to catch a coffee at Starbucks, sits next down to him at the cafeteria, at home on the weekend, public events with the family, etc.

Now let’s be fair: Don’t forget to anyone that profits from the status quo in Big Franchising. We don’t want to limit our unfettered capitalism to just these examples:

  • franchise bankers [and their exec VPs] at their Christmas party,
  • alpha male lawyers [and their senior partners] when they show up to Court or sales appointments,
  • media outlets who sponsor franchisors’ trade shows [tip off their competitors, first, maybe?],
  • franchise associations at their golf tournaments/trade shows/annual meetings,
  • picket every Monday a.m. to key politicians at their offices [constituency and other],
  • saying hello to the lapdog regulators on behalf of franchisees who were denied investigations into their complaints,
  • sales consultants when they exhibit at vertical industry trade shows,
  • the list goes on and on.

Of course, everything would be recorded on a digital camera, live streamed and archived on a YouTube channel. To protect the innocent and the initially recalcitrant.

Perfectly legal, Highly effective :: Doable Tomorrow.

Maybe it’d at least slow down crap AU lawsuits heaped on franchisee advocates which are designed drive them into bankruptcy and silence.


Selling Poo-filled franchise systems likely 100% Legal

August 20, 2008

Michael Webster brings up a good point in his article Can You Sell an Unproven System as a Franchise? It is worthwhile looking at Janet Sparks’ original report in Franchising Times.

When discussing a pending Colorado lawsuit, I tend to agree with Michael’s prediction:

I believe that the law in this area will turn out to be, in essence, that you can franchise any piece of poo, as long as you “disclose” in tricky legal fashion that you are a piece of poo.

It is of course a stupid law that would protect investors in franchise systems [franchisors] by allowing any old piece of poo to float through the system – but such is the dedication to the power of disclosure laws, much like the efficient market hypothesis, our regulators and legislature will continue to allow indentured servitude as long as it properly disclosed.

This is the state-of-the-art of legal protection in the home of franchising. And they are very aggressive in advocating for this lack of accountability for franchisors around the world.

Michael again:

I think that Seid‘s position is legally correct, [franchisors have zero duty to provide a proven system] even though both immoral and absurd.

But that is the problem prospective franchisees face – any piece of poo wrapped in a franchise agreement, and FDD can be sold for hundreds of thousands of dollars to the unsuspecting public who believe that they are buying a “proven” system.

Disclosing you are a worthless piece of poo is all the protection that Big Franchising is willing to give you.

Go ahead and choose your Type of modern franchise [see Bristol Stool Chart, above]. Or…

  • For Mom and Pops, Franchising is Unsafe at any Brand.

If you knew how to separate the pepper from the fly poo, you’d start your own business and not share an industry rife with “proven” psychopaths. [social predators: lack of conscience & empathy, glib, bullying, violence]


Oz Churning “Debate”

August 12, 2008

Jason Gehrke writes a weblog called Franchise tips and trends in http://www.smartcompany.com.au. His latest article, Churning: The dark side of franchising, is predictable.

I tried to submit a comment but was unable.

Here is what I would have submitted:

First the industry experts said “There is no churning.” Second, they say, “Well, yes, there is but…There’s just a few bad apples.” And, now, they add: Proving how bad a franchisor abuses their franchisees is difficult anyway (so why bother?).

Who are Australian small business investors going to believe: Franchise experts who keep changing their stories or returning foot soldiers from the franchise front? I have every confidence that people recognize BS when they see it.

1. Churning is a cluster of franchisor behaviors that results in financial catastrophe for the investor. These exercises of discretion within the incomplete contract are perfectly observable, auditable and quantifiable.

How often the abuse happens is irrelevant. Every franchisee knows what happens when you step out of line. Crucifixion was a very effective behavior modification technique.

2. There are no “good” systems or “bad” brands. The ability for franchisors to exercise their discretion in an abuse way (opportunism) arises from the very heart of the relationship. In franchising, the franchisee owns the majority of the store’s assets but the franchisor controls them. It is its great strength and its great source of abuse (it’s someone else’s money).

Attributing intentions (Oops sorry to cut your head off, there buddy. Does it ease your pain that I, admit, am an idiot?) means less than nothing. A family’s bankruptcy forms do not list someone else’s intentions.

3. To say that it is difficult to prove predatory business practices is a misrepresentation.

In Ontario, Canada, Gillian K. Hadfield presented a very simple rule to determine if a franchisor’s behavior was opportunistic: Would the decision in question have been made IF the franchisor HAD owned the franchisee’s assets THEMSELVES? If no, then the franchisor likely abused their dominant contract and economic position.

Example: Would the franchisor voluntarily pay the same price for the products that they FORCE their franchisees to buy from head office? Yes or no. Would they buy or shop around and get better value from another source of supplies? Is the contract being used to squeeze a hidden franchise tax from captured investors? Same thing with head leases, equipment purchases, renewals, etc.

Big Franchising wants everyone to stay asleep and they have a +30 years Oz history of saying anything to maintain their dominance. Get Smart.

Franchising is Unsafe at any Brand.

Les Stewart MBA
Midhurst Canada
lesstewart.wordpress.com


%d bloggers like this: