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Distributor and Franchise Fraud

Distributorships and franchises can be profitable business ventures. Fast-food franchises, for example, offer great opportunities for those willing to invest substantial amounts of money and time to succeed.

Unfortunately, not all franchise opportunities are legitimate. Con artists may create their own "investment" opportunities to lure inexperienced victims. The con artists promise the world, but deliver little to nothing. Be cautious if you encounter come-ons such as these:

  • Promises of unrealistic profits. Use common sense when evaluating offers. Will it really be as easy as claimed to make substantial profits?
  • Promises of guaranteed earnings in a "protected market area." A bona fide business opportunity usually will not make sweeping guarantees. In fraudulent promotions, investors may find others operating in the same supposedly "protected market area."
  • Guaranteed money-back refund if not completely satisfied, as long as the investor "operates according to instructions." Such guarantees are usually worthless. The promoter determines what "operating according to instructions" means, and the investor likely will be judged as not having met the criteria -- hence, no refund.

Be wary if a promoter is more interested in selling a distributorship or franchise than in marketing a product or service. And think twice about investing if you are not encouraged -- or allowed to -- contact other investors to ask about their results.

Your local Better Business Bureau or the Consumer Affairs Branch of your state Attorney General's Office may have information on the reputation of a distributorship or franchise operation you are considering investing in. You may also wish to check with the newspaper or magazine where you saw the promoter's advertisement to see if there are any complaints against the promoter.

If you believe you have been victimized in a fraudulent distributorship or franchise promotion where the U.S. Mail was used, report the incident to Postal Inspectors online or to your nearest Postal Inspection Service office.