A public FTC case study on refund promises, missing franchise disclosures, and buyers who paid before they could verify the system.
By Noah Green CPA CFE
Plain-English disclaimer: This article is for business diligence and fraud-awareness education. It is not legal, tax, or investment advice. Franchise buyers should consult qualified franchise counsel and accounting advisors before signing or paying.
The Short Version
Burgerim is a case study in how a franchise buyer can allegedly be misled before the business ever opens.
The Federal Trade Commission alleged that Burgerim and founder Oren Loni sold more than 1,500 burger franchises using a low-friction “business in a box” pitch while many buyers paid franchise fees and never opened restaurants. The case was filed by the U.S. Department of Justice on the FTC’s behalf on February 7, 2022, in the Central District of California.
The FTC case page says many consumers paid between \$50,000 and \$70,000 in franchise fees, and that the company targeted veterans with discount programs. The page also says the majority of the people who paid fees were never able to open restaurants.
The Misleading Mechanism
The alleged mechanism had four parts.
First, the sales pitch reduced perceived execution risk. Burgerim allegedly told prospects the concept required little or no prior business experience and that the company would help with location, financing, architects, contractors, licenses, and ongoing support.
Second, economics moved outside the formal disclosure system. The complaint alleged that representatives made financial performance representations orally, including sales and break-even estimates, without including those representations in Item 19 of the Franchise Disclosure Document. Item 19 is the section where a franchisor may share actual financial performance information if it has a proper basis and follows the rule.
Third, the refund story allegedly shifted. The government alleged that Burgerim told some prospects they could get refunds if they could not secure financing or a location, while disclosure documents said franchise fees were non-refundable or failed to disclose all refund conditions.
Fourth, the buyer-reference channel was impaired. The complaint alleged that, in numerous instances, Burgerim’s Franchise Disclosure Documents did not provide required Item 20 contact information for current and former franchisees. Item 20 is where a buyer pressure-tests the pitch against real operators.
Outcome
Oren Loni agreed to a stipulated permanent injunction (a court order both sides agreed to, permanently banning the conduct) on November 20, 2023. He did not admit or deny the complaint’s allegations except as stated in the order. The order permanently bars him from advertising, marketing, promoting, offering, selling, or assisting in the sale of franchises in the United States. It also entered a \$5 million civil penalty judgment and a \$38,849,351 consumer-redress judgment, suspended after a \$1,000 payment based on sworn financial disclosures, subject to reopening if those disclosures were materially false.
On January 19, 2024, the court entered a default judgment and final order against the entity defendants. The order permanently bans the entity defendants from selling franchises in the United States and enters a \$7,750,000 civil penalty judgment plus \$48,476,689 for consumer redress.
The FTC case page still labels the matter “Pending,” while listing the Loni order and entity default judgment as posted case events.
By the Numbers
| Item | Figure |
|---|---|
| Franchises sold (FTC) | More than 1,500 |
| Franchise fees paid | \$50,000 to \$70,000 |
| Loni stipulated order (Nov 20, 2023) | \$5,000,000 civil penalty; \$38,849,351 consumer redress (suspended after a \$1,000 payment) |
| Entity default judgment (Jan 19, 2024) | \$7,750,000 civil penalty; \$48,476,689 consumer redress |
| Court / docket | C.D. Cal., No. 2:22-cv-00825 (filed Feb 7, 2022) |
Penalty and redress figures are from the court orders. Oren Loni neither admitted nor denied the allegations; the entity judgment was entered by default.
A-Priori Red Flags
- The business is sold as simple, but actual opening depends on site control, financing, construction, licensing, staffing, food operations, and local management.
- Revenue, break-even, payback, or profit numbers are discussed orally but do not appear in Item 19.
- Refund promises are made verbally or by side letter but do not match the Franchise Disclosure Document.
- The system reports many sold franchises but cannot clearly show how many paid fees, opened, transferred, closed, or never opened.
- Item 20 does not let the buyer reach enough current and former franchisees to test delays, support quality, refunds, debt burden, and actual cash flow.
- Veterans, first-time operators, or inexperienced buyers are sold confidence instead of evidence.
SPP Bottom Line
A franchise buyer is not just buying a brand. The buyer is underwriting the franchisor’s disclosure discipline, support capacity, and incentives.
When the oral pitch, refund promise, Item 19, and Item 20 do not line up, the buyer should stop. The most dangerous franchise fraud pattern is not always a fake brand. Sometimes it is a real brand selling a future the disclosure record cannot support.
Through a certified-fraud-examiner lens, this is the recurring lesson of the ACFE Report to the Nations: organizations lose an estimated 5% of revenue to fraud annually, the median loss is \$145,000, a typical fraud runs about 12 months before detection, and 43% of frauds are caught by a tip rather than by a control. Fraud hides in plausible-looking representations, so the core defense is independent verification of the disclosure record rather than trusting the seller’s story. Buyers should also sequence qualified counsel and diligence before any fee changes hands, and can review more patterns across our other case studies.