DTI, SEC caution investors on bogus franchisers, scams

CEBU, Philippines - Investing on a franchise is one of the smartest ways to start a business. But budding entrepreneurs considering the franchise business may also fall prey to bogus franchisers if they are not well informed about it. 

The Department of Trade and Industry Cebu advises aspiring entrepreneurs to be cautious about franchising scams before deciding to venture into such enterprise.

Fake franchisers dupe the hard-earned money of potential investors.

In franchising, a prospective franchisee, one who buys a franchise, is offered by a franchiser to set up a retail business usually selling certain products or services. This business model is demonstrated through a continuing business relationship wherein the franchiser supplies the products, inventory and branding services needed by the franchisee.

“A franchise agreement or contract is subsequently entered into by the parties,” the DTI says.

But the agency warns that a scam could happen when once the franchisee pays the required fees, the franchiser is then unable to supply the products or is unable to give continued support to the franchisee’s business.

“[This] is in violation of the promises and representations made by the franchiser,” the trade department notes.

DTI Cebu consumer welfare chief Zaide Bation told The FREEMAN yesterday the agency had received five franchising-related complaints from February to early March this year. She said: “[This is] cause for alarm as within one month more or less we have five complaints not including the phone inquiries.”

The five, she said, complained about undelivered promises, no equipment and no initial product after downpayment, no promised location in the mall, constant recruiting and diversified product. “[We] referred [them] to franchise association in Manila,” she added.

When asked about the names of franchisers deemed to be bogus, she said: “[It is] still to be issued by the franchise association after inspection, evaluation and verification.”

DTI tells the public to contact franchising associations to verify legitimate franchisers, including Philippine Franchise Association, Filipino International Franchise Association, Association of Filipino Franchisers and Food Cart Association of the Philippines.

Investment scams

In addition, the trade agency also warns against bogus investment schemes that promise big profits. “A scam is a trick to cheat you of your money, carried out by people who seem smart and charming but are actually looking for ways to take your money without your knowing it,” it says.

In the same way, the Securities and Exchange Commission tells the investing public to be very cautious with financial investments that guarantee high returns in a short period of time.

Pyramiding is one of the most common financial scams. The pyramid scheme recruits investors with an offer of guaranteed high returns. Investors attempt to make money solely by recruiting new participants into the program.

The DTI states: “All pyramid schemes collapse. Later recruits will not be able to sign in the numbers required to deliver the income promised. There will always be some who will think it’s too good to be true and resist signing up.”

In a previous interview, SEC Cebu Director Lindeza Gavino claimed it’s impossible for the government to prevent these scams for as long as there are people who, despite knowing what they’re getting into, still venture into no-risk-but-high-return investments out of greediness.

But it is also right that government regulators must also improve their scam-busting system to stop these scams from happening. They must crackdown bogus schemes before they happen to maintain a safe financial environment. (FREEMAN)