Frosh penalizes burger chain, alleges failure to disclose financial information

Listen to this article

A nationwide chain of burger restaurants has been ordered to stop selling franchises in Maryland after it allegedly failed to disclose required information about its financial status, the Maryland Office of the Attorney General announced Friday.

The Attorney General’s Office alleges that Burgerim Group USA Inc. failed to disclose that the company had hired insolvency counsel to assist in restructuring its debts — which may involve filing a bankruptcy petition, according to a news release — and that the company had hired a chief restructuring officer.

Burgerim has 114 restaurants in the United States and sold seven franchises in Maryland in 2018, according to the release.

While the order stops Burgerim from selling franchises in Maryland, it does not affect any current Burgerim establishments, at least not at the moment, according to Raquel Coombs, spokesperson for Maryland Attorney General Brian E. Frosh’s office.

“We are continuing to look into the company’s operations,” Coombs said. “We’re hoping to get additional answers.”

The order also requires Burgerim to show cause for why its franchise registration should not be revoked, the release said.

“When we have information that a franchise disclosure document does not contain required information or has become materially misleading to prospective franchisees, we will take action to stop a franchisor from selling franchises in Maryland,” Frosh said in the release.

Burgerim — which, according to news reports, opened its first restaurant in 2011 in Tel Aviv — planned to open 351 new franchises in 2019, including five in Maryland, according to the release.

Attempts to reach Burgerim Group USA’s Encino, California, headquarters were unsuccessful, as was an attempt to reach the owner of an Owings Mills Burgerim franchise.

Stephen Worley, a spokesperson for the International Franchise Association (IFA), said the group “condemns Burgerim’s alleged action and supports the Maryland regulators who protect the business environment for franchising and future prospective owners.”

“Mandatory pre-sale disclosures are imperative to developing healthy relationships between a prospective franchise owner and the brand,” Worley said in an email, adding that disclosure issues are rare.

“The International Franchise Association expects its members to uphold these standards of business practices and ethics. Burgerim’s alleged failure to include relevant information in its Franchise Disclosure Document does not meet that standard,” Worley wrote.

Worley said Burgerim was no longer a member of the IFA. He declined to say why or when Burgerim left the association.

Start-up costs for Burgerim franchises run from $30,000 to $50,000, with a total investment of $150,000 to $250,000, according to an estimate by Burgerim previously published by the IFA.