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Court Unmasks Franchising Fraud
On 11 May 2016 the Federal Court handed down penalties in the claim by the Australian Competition and Consumer Commission (ACCC) vs SensaSlim Australia PTY LTD (in liquidation).
The SensaSlim “Franchise” was the brainchild of a Mr Foster who concealed his involvement because there were already in place court orders restraining him from being directly or indirectly concerned in the promotion or conduct of any business relating to weight loss.
The Court’s comment was that SensaSlim’s conduct was deliberate, covert and fraudulent to a high degree and directed to obtaining money by deceit. Its object was to conceal the activities of Mr Foster and to deceive Franchisors.
SensaSlim fraudulently represented that a worldwide clinical trial had been conducted and had established scientifically that the SensaSlim product was an effective weight loss product.
Actors were employed to make false claims in the SensaSlim DVD and advertorials fabricating the existence of the “Institute” said to have been involved in the conduct of the fictitious trial. A fictitious report called the Strebel Report was prepared using false identities and used as if it were a genuine scientific report.
Approximately 110 franchises were sold at a cost of $59,950.00 each thus earning SensaSlim about $6.4 million.
The Court imposed a $3.55 million penalty against SensaSlim (in liquidation) and a $660,000 penalty against Mr Foster.
Mr Foster was banned for life from being involved with any business promoting or supplying weight loss products and also permanently disqualified from managing corporations.
A lesson to be learned?
Always conduct due diligence to check on the product that the franchisor is selling and the reputation of the franchisor. Make your own independent investigations and do not allow yourself to be pressurised. If in doubt take legal or accounting advice before entering into any franchise agreement. Rothstein Lawyers can assist.
Article Uploaded May 17 2016
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