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Raving Brands Faces More Litigation
Internal documents indicate Raving Brands management omitted statements required by "generally accepted” accounting principles in its UFOC, while, in three separate lawsuits, franchisees claim Raving Brands is taking undisclosed kickbacks. The company has issued a media gag order for all operators.
Editor's note: This is the first story in a three-part series of QSRmagazine.com's investigation of Raving Brands' and founder Martin Spock's legal troubles.

After QSRmagazine.com broke the story about a potential sale of Moe's Southwest Grill April 2, Raving Brands officials emailed franchisees, informing them that they cannot speak to the media.

"Should another franchisee, outside partner or a reporter contact you, you are NOT to discuss or send emails about this lawsuit or any issues relating to it under any circumstance," wrote Matt Andrew, brand leader and vice president of Moe's Southwest Grill.

Andrew was not immediately available for comment.

A lawsuit, filed in the U.S. Court of Atlanta March 30, stated franchisees heard a potential sale of Moe's may be on the horizon. The suit says it hopes to protect the franchisees' assets in case a sale is finalized.

In a prepared statement issued April 4, president and chief operating officer Steve LeMastra did not confirm or deny a potential sale.

"Raving Brands is frequently approached by prospective buyers and, as part of our ongoing commitment to our franchisees and the long-term success of our brands, we have evaluated these offers and will continue to do so," the statement says. "Neither Moe's Southwest Grill nor any other concept within our portfolio has been sold."

The suit also alleges racketeering, undisclosed kickbacks, and failure to donate certain franchisee transactions to charity as advertised.

Raving Brands, which recently announced international expansion and said it hopes to operate 1,000 stores by 2009, does not comment on pending litigation. But in a March phone interview, LeMastra denied the allegations and said the system has never taken better care of its franchisees.

"We're doing things that are just extraordinary right now in our Moe's system," LeMastra says.

Raving Brands' focus on Moe's and not its other outfits may be what led to an action filed in November. Mama Fu's operators alleged misrepresentation, saying Raving Brands promised a perfected system. They contended there was no system to perfect, because Mama Fu's was just an idea with no stores opened. The suit also alleges undisclosed kickbacks, fraud, and racketeering under Georgia's RICO Statute.

California Abandoned

A California lawsuit, filed March 8, alleges Moe's franchisees were promised average unit volumes of $900,000 to $1 million or net profits of 15 to 20 percent. These claims were not disclosed in the filings with the California Department of Corporations—a state requirement—and the financial statements were not prepared in accordance to Generally Accepted Accounting Standards and Practices, the suit says.

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