FTC Issues $1.3M Judgment Over Coffee Chain’s Violations Of The Franchise Rule – CoffeeTalk

The Federal Trade Commission (FTC) has issued a proposed order against Qargo Coffee for failing to provide critical information required by the Franchise Rule, including one of its founders’ ties to the now defunct Burgerim. The proposed order imposed a $1.3 million judgment, but will require the defendants to pay $30,000 due to their inability to pay the full amount. This is the second case in recent years in which the FTC has alleged violations of the Franchise Rule. It sued Burgerim in 2022 over making false promises and misleading franchisees.

Qargo has been franchising throughout the country since May 2020 and signed 59 franchise and distribution agreements between the beginning of 2021 and October 2023, with operators paying over $1.25 million to the company to open a shop. Despite signing nearly 60 agreements, franchised growth has been slow at Qargo, with only two franchised units at the end of 2023. The company offers kiosk and drive-thru stores in addition to traditional locations. However, the company has projected significant growth, with 117 locations expected to open within the next fiscal year, with the biggest target for growth being Florida, where it expects 15 openings.

The FTC has taken particular issue over Qargo and its founders Mark Bastorous, Bernadette Bastorous, and Samir Shenouda not properly disclosing their business history and experience. The FTC also claims that the company made “misrepresentations about how long it takes for franchises to get off the ground and whether there were any bankruptcies that needed to be disclosed.” For example, the complaint said Mark and Bernadette Bastorous failed to disclose filing for Chapter 7 bankruptcy after running Steak ‘n’ Shake franchises. Mark Bastorous also worked as a development manager at Burgerim, which went on to sell 1,500 franchise outlets across the U.S. that never opened. This led to a significant controversy and lawsuits by several state agencies and the FTC, which said Burgerim violated the Franchise Rule and FTC Act.

Mark Bastorous claimed that the FTC’s implication that he was involved in Burgerim’s fraudulent activities is both incorrect and unjust. He requested that his name be cleared of any association with Burgerim’s fraudulent activities, as he was a victim who was deceived and financially impacted by their unethical practices.

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