ADMINISTRATIVE PROCEEDING BEFORE THE SECURITIES COMMISSIONER OF MARYLAND * * * * * * * * * * * * * CONSENT ORDER

Transcription

1 ADMINISTRATIVE PROCEEDING BEFORE THE SECURITIES COMMISSIONER OF MARYLAND IN THE MATTER OF: * * Sit Means Sit Franchise, Inc., and * Case No Sit Means Sit, Inc., * Respondents * * * * * * * * * * * * * * CONSENT ORDER WHEREAS, the Securities Division of the Office of the Attorney General of Maryland (the Securities Division ) initiated an inquiry into the franchise-related activities of Sit Means Sit Franchise, Inc. and Sit Means Sit, Inc. (Collectively Respondents ) under the authority granted under the Maryland Franchise Registration and Disclosure Law, MD. BUS. REG. CODE ANN et seq. (2010 Repl. Vol. and Supp. 2011) (the Maryland Franchise Law ); and WHEREAS, based on information presented by the Securities Division, the Maryland Securities Commissioner (the Securities Commissioner ) concluded that grounds exist to allege that Respondents violated the registration, disclosure, and anti-fraud provisions of the Maryland Franchise Law, in relation to offers and sales of Sit Means Sit franchises in Maryland; and WHEREAS, before the holding of a hearing in this matter, without trial or final adjudication of any issue of fact or law, and without Respondents admitting or denying any violation of law, the Securities Commissioner and Respondents have reached an agreement to enter into this Consent Order;

2 NOW, THEREFORE, IT IS HEREBY ORDERED AND DECREED: I. JURISDICTION 1. The Securities Commissioner has jurisdiction in this proceeding pursuant to Section (a) of the Maryland Franchise Law. II. STATEMENT OF FACTS A. Respondents 2. Sit Means Sit, Inc. ( SMSI ) is a Nevada corporation with a principal business address of 2900 E. Patrick Lane, Suite 2A, Las Vegas, Nevada Sit Means Sit Franchise, Inc. ( Sit Means Sit Franchise ) is a Nevada corporation with a principal business address of 2900 E. Patrick Lane, Suite 2A, Las Vegas, Nevada 89120, the same principal business address as SMSI. 4. SMSI and Sit Means Sit Franchise are affiliates. 5. The current officers of Sit Means Sit Franchise also are officers of SMSI, serving in the same positions in both entities. 6. From March 2006 through November 2008, SMSI offered and sold licenses, in the form of Merchandising and Licensing Agreements, for dog training business under the trade name Sit Means Sit. Although SMSI remains in business, SMSI ceased offering licenses after November The Securities Division has determined that the licenses offered by SMSI in the form of Merchandising and Licensing Agreements constitute a franchise as defined under the Maryland Franchise Law. 8. After November 2008, Sit Means Sit Franchise began offering and selling franchises 2

3 in the form of License Agreements for dog training businesses under the tradename Sit Means Sit. Sit Means Sit Franchise also offered to SMSI licensees the opportunity to convert their SMSI licenses into Sit Mean Sit franchises by entering into conversion addendums and franchise agreements with Sit Means Sit Franchise. B. SMSI 9. SMSI has never registered with the Securities Division to offer franchises under the Maryland Franchise Law. 10. As of December 31, 2007, SMSI had 79 Merchandising and Licensing Agreements operating throughout the U.S. 11. Between March 2006 and September 2008, SMSI entered into Merchandising and Licensing Agreements with two Maryland residents, MFD of Pasadena, Maryland, and LN of Waldorf, Maryland. 12. According to Respondents, MFD is the sister of Alfredo Rivera, the current president of Sit Means Sit Franchise, and the former president of SMSI. 13. According to Respondents, MFD terminated her SMSI Merchandising and Licensing Agreement in October On November 6, 2010, LN agreed to convert his SMSI Merchandising and Licensing Agreement into a franchise by entering into a conversion addendum and signing a new franchise agreement with Sit Means Sit Franchise. By the time LN entered into his conversion addendum and franchise agreement with Sit Means Sit Franchise, on November 6, 2010, Sit Means Sit Franchise was registered with the Securities Division to offer and sell franchises under the Maryland Franchise Law. 3

4 15. At the time MFD and LN entered into their respective Merchandising and Licensing Agreements, SMSI never disclosed to them that those licenses constituted a franchise as defined under the Maryland Franchise Law. 16. At the time MFD and LN entered into their respective Merchandising and Licensing Agreements, SMSI did not provide either individual with a Franchise Disclosure Documet ( FDD ) effectively registered by the Securities Division, containing disclosure information about SMSI s offering required under the Maryland Franchise Law. C. Sit Means Sit Franchise 17. Sit Means Sit Franchise was registered to offer franchises under the Maryland Franchise Law from September 23, 2009 through June 24, In various FDDs that Sit Means Sit Franchise filed for registration with the Securities Division, in 2009 through 2010, Sit Means Sit Franchise noted that, as a condition of registration, the Securities Commissioner required Sit Means Sit Franchise, in lieu of imposing an escrow condition, to defer initial franchise fees, deposit and training fees until the franchisor fulfilled its preopening obligations to Maryland franchisees. 19. On May 29, 2012, Sit Means Sit Franchise filed an initial application with the Securities Division to re-register the Sit Means Sit franchise offering under the Maryland Franchise Law, after nearly a one year period of lapsed registration. 20. On June 28, 2012, the Securities Division sent Sit Means Sit Franchise a comment letter identifying deficiencies in the application and FDD that Sit Means Sit Franchise had to correct in order for the Securities Division to register the Sit Means Sit franchise offering under the Maryland Franchise Law. 4

5 21. Among the comments that the Securities Division sent to Sit Means Sit Franchise on June 28,2012 was that the escrow condition the Securities Commissioner previously imposed continued in effect, such that all fees paid to the franchisor by the franchisee, including payments for goods and services received from the franchisor before the business opens, should be held in escrow pending satisfaction of all of the franchisor s material pre-opening obligations to the franchisee, although Maryland regulations allow alternatives to the imposition of an escrow condition, including deferral of initial fees. 22. Among the other comments that the Securities Division sent to Sit Means Sit Franchise on June 28,2012 was for Sit Means Sit Franchise to explain the listing of Maryland licensees in Item 20 of Sit Means Sit Franchise s FDD. 23. Further, in the Securities Division s June 28, 2012 letter, the Securities Division requested that Sit Means Sit Franchise submit an undertaking, signed by an authorized officer of the franchisor, that the franchisor neither offered nor sold franchises in Maryland or to any Maryland resident during the time it was not effectively registered under the Maryland Franchise Registration and Disclosure Law. 24. On August 9, 2012, Sit Means Sit Franchise responded to the Securities Division s June 28, 2012 comment letter. The president of Sit Means Sit Franchise also included an executed undertaking dated August 8, 2012 stating that Sit Means Sit Franchise Inc. neither offered nor sold franchises in Maryland or to any Maryland resident during the time it was not effectively registered under the Maryland Franchise Registration and Disclosure Law. 25. On August 30, 2012, the Securities Division received information that, prior to August 8, 2012, Sit Means Sit Franchise had, in fact, offered a franchise to a Maryland resident for 5

6 a Sit Means Sit franchise, when Sit Means Sit Franchise was not registered to offer franchises under the Maryland Franchise Law. 26. Specifically, although Sit Means Sit Franchise had not entered into a formal franchise agreement with the Maryland resident, Sit Means Sit Franchise had accepted a $1,500 deposit from the Maryland resident several months prior to August 2012; had delivered a Sit Means Sit FDD to that Maryland resident; and had invited that Maryland resident to attend a training program in Las Vegas, Nevada for Sit Means Sit franchisees. 27. By August 30, 2012, Sit Means Sit Franchise had refunded the deposit the Maryland resident had paid towards the purchase of a Sit Means Sit Franchise and had rescinded the invitation for that Maryland resident to attend the Sit Means Sit franchise training program. D. Acknowledgments and Representations by Respondents 28. SMSI acknowledge that each Merchandising and Licensing Agreement SMSI entered into with Maryland residents constitutes a franchise as defined under the Maryland Franchise Law. 29. SMSI further acknowledge that SMSI was not registered to offer and sell franchises under the Maryland Franchise Law at the time SMSI entered into Merchandising and Licensing Agreements with Maryland residents and that SMSI did not provide those Maryland residents with an FDD registered under the Maryland Franchise Law prior to the sale of the SMSI Merchandising and Licensing Agreements. 30. SMSI also represent that, other than the sales to MFD and LN, SMSI did not offer or sell any franchises in the form of Merchandising and Licensing Agreements to any Maryland residents or to any other persons for a franchise to be located in Maryland. 31. Sit Means Sit Franchise acknowledges that it offered a franchise to a prospective 6

7 Maryland franchisee at a time Sit Means Sit Franchise was not registered to offer franchises under the Maryland Franchise Law. 32. Sit Means Sit Franchise also represents that it has developed and implemented new or updated, written compliance procedures to ensure that, in the future, Sit Means Sit Franchise complies with the registration, disclosure and antifraud provisions of the Maryland Franchise Law. IV. CONCLUSIONS OF LAW 33. By engaging in the above activities, the Securities Commissioner has concluded that SMSI violated , , , and of the Maryland Franchise Law. 34. By engaging in the above activities, the Securities Commissioner has concluded that Sit Means Sit Franchise violated , , , , and of the Maryland Franchise Law. V. ORDER AND CONSENT 35. THE SECURITIES COMMISSIONER HEREBY ORDERS, AND RESPONDENTS REPRESENT AND CONSENT THAT: A. Respondents shall immediately and permanently cease and desist from the offer and sale of franchises in violation of the Maryland Franchise Law; B. Respondent Sit Means Sit Franchise shall submit to the Securities Division, in a form acceptable to the Securities Commissioner, a copy of new compliance procedures designed to ensure that Sit Means Sit Franchise complies with the registration and disclosure provisions of the Maryland Franchise Law and the antifraud provisions regarding untrue statements made in an application filed with the Securities Commissioner. C. Respondent Sit Means Sit Franchise shall pay a civil monetary penalty of $2, payable to the Office of the Attorney General. D. Respondents acknowledges that this Consent Order is a discloseable order as described under the Maryland Franchise Law, and Item 3 of the NASAA Franchise Registration and Disclosure Guidelines and Amended FTC Franchise Rule. 7

8 VI. JURISDICTION RETAINED 36. Jurisdiction shall be retained by the Securities Commissioner for such further orders and directions as may be necessary or appropriate for the construction or enforcement of the Consent Order. VII. CONSEQUENCES OF VIOLATING THIS CONSENT ORDER 37. If any Respondent fails to comply with any term of this Consent Order, the Securities Division may bring administrative or judicial proceedings against it to enforce this Consent Order or to sanction it for violating an order of the Securities Commissioner, and may take any other action authorized under the Maryland Franchise Law or any other applicable law. In any such proceeding in which, after an opportunity for a hearing, the Securities Commissioner or a court finds that a Respondent has violated this Consent Order, the Statement of Facts and the violations of the Maryland Franchise Law alleged in the Consent Order shall be deemed admitted and may be introduced into evidence against it. VIII. MODIFICATION OF CONSENT ORDER 38. The terms of this Consent Order may be modified only by a subsequent order issued by the Securities Commissioner. BY CONSENT: SIT MEANS SIT, INC. SO ORDERED: Commissioner s signature is on file with original documents. By: Alfredo O. Rivera, President MELANIE SENTER LUBIN SECURITIES COMMISSIONER SIT MEANS SIT FRANCHISE, INC. DATE OF THIS ORDER: By: Alfredo O. Rivera, President September 19,