According to the FBI, pyramid schemes (also known as franchise fraud) are investment and marketing frauds in which individuals are given the opportunity to buy a distributorship or franchise to promote a specific product. Real profit is earned; however, it is not earned through the sale of the product, but rather through the sale of new distributorships. The focus on selling franchises (as opposed to the actual product) eventually leads to a point where the number of possible investors is exhausted and the pyramid collapses.
In a franchisee-franchisor relationship, the franchisor is usually a major company that has more information than the franchisee. Some companies use this to take advantage of investors by misleading them about fees, profits and associate costs. Franchise companies that engage in these kinds of practices may be in violation of certain contractual rights and franchise laws. If you have been accused of such violations, a San Francisco white collar criminal defense attorney can help you determine what laws apply to your case and what possible defenses are available.
Franchising is regulated in the U.S. by franchising regulations that consist of the Federal Trade Commission Franchise Rule, state laws, and industry guidelines. Also, the state of California has franchise investment laws that require franchisors to supply pre-sale disclosures to prospective purchasers. These legal documents are intended to give potential franchisees information that is pertinent to a franchise offering. If you find that you need the services of a San Francisco white collar criminal defense attorney, contact Chris Morales for a free consultation.