So is every business failure a "scam"?

I say not.

An example of a full-blown scam: Bernie Madoff sent people account statements for years, showing their account balance and trading activity.  Only there were no trades made, and there weren't any account balances.  it was all bulldinky, elaborately covered up for as long as possible.

Now if someone decides to franchise a "concept" that turns out not to work very well, is that really a "scam"?  There actually were 123 gyms, there actually are Quiznos restaurants.  I don't know if there has been more than one "Flip Flop Shop", but there are indeed a few Smashburgers.  As it turns out, it seems that few Q's or 123's were profitable.  Time will tell for Smashburger.  So if they aren't, is that a "scam" or just a poor business to invest in?

There is also outright business failure.  Cuppy's seems to be an example.  They took people's money and then didn't fulfill their obligations.  But did they take the money INTENDING at that time not to perform?  Then indeed that would be a scam. Or did they taking it hoping and intending, but simply failed?  I think they just failed, and indeed people have sued and gotten judgements against them, nder existing law.  (Too bad there is nothing to collect.)  Every day lots of businesses fail without having been scams. It's not like we need some new law to address business failure.  We have civil judgments and bankruptcy for that.

And I doubt the need for anything radical as to new laws to address poor investments.  That's what Due Diligence is supposed to be for.  It may make one feel better to say "I was scammed", but lots of times you really weren't.  It just wasn't a very good deal.  In fact it was piss-poor.  But that doesn't necessarily make it a scam.  If it was, it should be no trouble at all for you to obtain a judgement against the scammer (though as we've seen, collecting is a whole 'nother story).

Difficulty of proving a scam

No. Every business failure is not a scam. I think just about everyone reading this agrees on this point. Not all failing businesses or their franchisors are convicted in court of fraudulent misrepresentation. There are only a few.

Granville Bean asks, "Cuppy's seems to be an example. They took people's money and then didn't fulfill their obligations. But did they take the money INTENDING at that time not to perform?"

Yes. I think it is fairly apparent that the founders took people's money without intending to pay them back.

But Bean brings up a good point. If Bernie Madoff somehow could convince himself of his own b.s., then no real scam has been committed. Right?

Posted by Guest on December 15th, 2009

mens rea

Nope, nothing to do with the men's room.  The legal concept common in American, English and (AFAIK) most Western world legal systems, that there must be a criminal state of mind, criminal intent, for there to be criminal liability.  Without the requisite mens rea, there is merely civil liability. 

So for a failed Zor yes, "But we were hoping this would work" could be a defense to a criminal charge (if the jury beleives it).  Not the civil liability.  But what I find interesting is that many of the Hurt Zees we hear from, allege "scam" yet obtain NEITHER a criminal conviction nor a civil judgment.  (If you got your judgment but can't find anything to levy it upon, that's a different story.) A Newbie Zee signing a disadvantageous agreement isn't a per se scam.

on December 17th, 2009

Is business getting better?

Is business getting better?

Were you aware of the following:

"The franchisor claims "99% survival rate form ground up locations since 1996." Other Information Shows: EOC&SC Corp. stores v. Franchise Stores over the past three years:

2007: 51 Corp stores v. 106 franchisee stores

2009: 70 Corp stores v. 99 franchisee store

That's a 37% increase in Corp stores, while a 9% decrease in franchisee stores - during a time when they claim they do not want to open any additional Corp stores. Where are they getting these stores from? Failing franchisees? If yes, then how or why do you continue with the same business model and claim 99% survival rate?

Birmingham Business Journal Article of April 4, 2008 article on Express Oil Change & Service Center: At that time, "24 new franchisee owned centers was the goal with no new corporate centers" was the plan.

Also: Of the nine new "ground up" stores opened in 2008 and all tracking under well projected sales - with 7 of the 9 tracking at about 50% of projected revenues (or 320k annual). Debt Service is around 1.3 million for each franchisee - can it be sustained?

Is this information being properly disclosed by the franchisor as required by FTC regulation?

Posted by Guest on July 31st, 2010