According to a memo in the financial section of the April 2006 Uniform Franchise Offering Circular, Moe's "management has elected to omit substantially all of the statements and cash flows required by generally accepted accounting principles." The "compilation" accounting statement was a balance sheet signed by certified public accountants. Phone calls to Raving Brands accounting firm were not immediately returned.
Moe's April 2006 UFOC also includes an audited 2005 financial statement, which does indeed follow Generally Accepted Accounting Principles. The compilation records were for the three periods ended March 19, 2006. It's not uncommon to have un-audited financial statements for interim periods, says franchise attorney Jeff Letwin, managing partner with Schnader Attorneys at Law. But Bill Moody, chief executive of Gamble Given & Moody LLP and certified public accountant, says compilation reports should only be used for internal purposes, not for making big business decisions, such as buying a franchise or getting a bank loan.
However, franchise laws only require franchisors "to have audited financial statements at the end of the fiscal year," Letwin says.
But these accounting records may substantiate the undisclosed kickback claims, says David Laufer, who is representing the California Moe's operators.
"We've been saying that they're not reflecting the actual performance of the company,"
Laufer says.
He says franchisees were told Moe's market power would result in the lowest possible rental rates and that the company's vast experience in selection of construction contractors would produce the most cost-effective build-out for restaurants. But none of that happened, he says.
In addition, Laufer says Moe's was not registered with the California Department of Corporations when his clients bought into the franchise. When Raving Brands did register with the state-run organization, Laufer says, the company gave the agency UFOCs and franchise agreements that did not match Laufer's client's.
"They did not comply with California franchise laws when they sold these stores," he says. "They sort of looked the other way."
There are no Moe's restaurants in California, according to the company's website. Laufer says his clients lost roughly $3.9 million.
"Our goal is to get our money back and restore their economic health," Laufer says.
According to Andrew's email, less than 5 percent of Moe's franchisees are suing the company. And before the company gagged its franchisees, many operators spoke positively about Raving Brands' support.
"I'm very pleased with the representation," says Harry Schindler, a one store operator in Ohio, in a March 26 phone interview for a separate story. "They've been pretty good to me."