Neither Burgerim nor its founder Oren Loni will be allowed to sell franchises in the U.S. ever again, according to a settlement and a default judgment handed down in a federal court recently.
A judge handed down a default judgment against Burgerim Group Inc., in January, after the franchise didn’t respond to the lawsuit. That judgment includes a permanent injunction preventing the company from selling a franchise in the U.S., along with $56 million on monetary awards and penalties.
Loni, who led the chain as it sold franchises to more than 1,500 people, most of whom never opened a location, settled the lawsuit in November.
He agreed to a $5 million civil penalty plus $38.8 million for “consumer redress.” But he was required to pay just $1,000. The rest of nearly $44 million in penalties was suspended unless a court found that he misled the court on the value of his own assets.
The U.S. Federal Trade Commission sued Burgerim and Loni in 2022, accusing them of convincing more than 1,500 to pay as much as $70,000 for the right to open a franchise between 2015 and 2019, while intentionally misrepresenting the risks of doing so.
The company also broke promises to provide refunds. Burgerim also underestimated the costs of opening locations while overstating the amount of support it provides franchisees.
Loni himself fired his corporate staff and closed the doors to the chain’s California headquarters, leaving behind boxes of documents, and fled the country in late 2019. Burgerim operators were not notified until a few weeks later when the company, through a different executive, said the company planned to file for bankruptcy.
The problems of Burgerim were detailed in a 2020 Restaurant Business investigation.
Representatives for Burgerim and the FTC have not yet responded to requests for comment. Burgerim’s website said the company is no longer accepting franchise applications.
The judge agreed to the federal government’s request of a $7.75 million civil penalty against Burgerim and another $48.7 million in monetary penalties against the franchise. The penalty is the amount of money believed to have been taken from prospective franchisees, minus $9.2 million in refunds the company did pay to operators.
The collapse of Burgerim and revelations of the number of people who agreed to buy franchises from the company over a four-year period highlighted some of the aggressive sales tactics used by some franchises, and a lack of enforcement when companies break rules.
In Burgerim’s case, the company deployed boiler room-type sales tactics, aggressively convincing operators to buy franchises. Would-be operators drained bank accounts and even took out loans to pay for franchise fees, including $10,000 for veterans to $70,000 for multiple units. Several franchisees who took out SBA loans to open their business later had their homes foreclosed after they defaulted on the loans when their restaurants failed.
The company often promised high profits, even though Burgerim did not disclose any financial information in its documents. Operators were often told they could make as much as $1 million in revenue their first year and up to a 40% profit margin, according to court documents.
Many who bought into the franchise, however, were financially unqualified and couldn’t get financing or a location. Many of those who did open later closed or rebranded after struggling financially, though franchisees continue to operate several dozen units scattered around the country, according to the company’s website and a check through various sources.
As for Loni, in 2020, according to court documents, he tried to take out a $261,200 Paycheck Protection Program loan through a California bank in 2020, months after he fled the country, according to court documents. That request was denied.
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