The Green Acres Fraud

On or about December 23rd 07, a story broke in the news about a major fraud affecting about a 180 Chinese and Indian Immigrants.  Keith Lapham, a master licensee for the home maintenance company Green Acres sold 180 bogus franchise licenses for between $20,000 and $25,000 each.  Green Acres the parent company knew nothing until they were contacted by a small number of the victims with regard to missing payments.  After Mr Lapham was confronted, he admitted only 50 or so of the 200 licenses franchisees on his books were legitimate.

Mr Lapham went to extraordinary lengths to hide the fraud, employing bogus couriers to deliver ironing, buying clothing from Salvation Army stores to keep the victims busy and used fake customer names.  By the time his Green Acres bosses found out what was happening, Mr Lapham was organising ironing for George Clooney, Ronald and Nancy Reagan, Lady Di and Brad Pitt.

Green Acres have stepped up to the plate, siting a moral responsibility to help out the victims defrauded by Mr Lapham with a rescue package.  They are offering legitimate franchise licenses to those who meet their standard criteria which includes: Proof of immigration status, The ability to speak English, hold a drivers licence and eligibility to own and operate a business.  Other requirements include purchase of a vehicle for deliveries and pickups, sign writing the vehicle and purchase of uniforms.  The rescue package will not guarantee a minimum weekly return.  Green Acres are also offering for the victims to take up franchise licences in other areas of home maintenance, eg house cleaning or lawn mowing.

The victims are rejecting the package, stating their original contracts had no such requirements and guaranteed a minimum income.  Instead they plan to take legal action against the parent company Green Acres to recover their losses.

Keith Lapham is believed to be in hiding and Green Acres state they have no legal responsibility toward the victims, but feel a moral responsibility to help them out.  The Serious Fraud Office is investigating.  Franchise Watch is launching a website and plans to ask for donations toward legal costs already estimated at $100, 000.

The big question would seem to be, is Green Acres legally responsible?  From the very little I know of Franchise arrangements, the answer would appear to be in the negative, but now that will be for the courts to decide.  Keith Lapham on the other hand, is clearly responsible legally, morally and criminally.

The old adage, if something seems to good to be true seems to fit here.  Who amongst us seriously believes George Clooney and Brad Pitt, two huge Hollywood stars, would send their ironing to a small franchise in New Zealand weekly?  Why is Nancy Reagan having Ronalds clothes ironed still, he’s been dead for a while now and ditto for Lady Di, The Princess of Wales has been dead for 10 years, I seriously doubt her day to day clothing is being regularly worn.

The victims don’t want to meet the criteria of a legitimate Green Acres franchisee, to a certain degree I can understand, nobody wants to throw good money after bad.  It doesn’t however seem a great deal to ask for proof of immigration status, that is surely a legal requirement for anyone employing an immigrant, the ability to speak English is also a requirement to meet immigration law, there is a test after all.  Holding a drivers licence and having a vehicle were not part of their original contracts because the contracts were BOGUS!  If pick up and delivery of ironing IS a requirement of a genuine franchisee, well I am sorry but that is the price of having a legitimate Green Acres franchise.

It shouldn’t be forgotten that Green Acres is a victim in this fraud also.  If indeed as they state, they have no legal responsibility, their offer of genuine franchises for those who meet the criteria is generous, they will be effectively giving away a license and taking a hit monetarily.  Not to mention the disrepute, their brand and reputation has attracted.

If the courts decide that Green Acres is not fiscally responsible for the fraud perpetrated by Keith Lapham, and a subsequent Fraud trial orders reparation to the victims, in addition to a prison sentence, these victims could be waiting a seriously long time for their money and meanwhile what do they do for income? 

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2 Responses to “The Green Acres Fraud”

  1. No offense but your understanding of franchising and the psychology of fraud is an inch deep and a mile wide.

    1. What exactly is the marginal cost to the franchisor of the 1,001th franchisee other than next to zero? To say their offer is overly generous is stretching any impartial view of this situation.

    The converse argument could be forwarded: How much is each of the 0 to 1,000th franchise worth now? And who bears the lion’s share to blame?

    Do you think the existing franchisees are happy? Not too many public statements from those whose life savings have been depreciated by a management team “asleep at the switch”.

    I would suggest that the “good” Green Acres 1,000 franchisees are being “encouraged” to shut up or face the wrath and loss of their sunk cost investments. But intimidation from the head office doesn’t happen in franchising, does it?

    2. The business relationship between a franchisor and a franchisor’s associate (which is the correct legal term for Mr. Lapham in every North American law) is very clear: what the associate binds, binds the franchisor. Look it up under the Federal Trade Commission’s opinions.

    3. There are 3 commercial relationships within the British heritage of law: employee/employer, agency and franchise. The unique vulnerabilities of the franchise relationship has been recognized in the United States (home of franchising) since 1956 and in Canada since 1976 (the 1st stop internationally for most franchise systems.

    Franchisees can have their equity stripped after the contract is signed by a franchisor who exercised their discretion in an opportunistic manner. Franchisees will stay in business even when their marginal variable costs are LESS than their average sales (a negative margin contribution). This happens because they realize they will only achieve 10 to 15% of their investment at resale because of franchisor-structured legal instruments.

    4. At most, only 5% of fraud victims ever report their losses to the authorities. Although white-collar crime is perpetrated across all economic and social levels, you share a common ignorance of the psychological barriers. I suggest cruising by Michael Webster’s fantastic weblog: bizop.ca.

    5. How is it possible for the formation of a contract (ie. offer, acceptance, consideration, etc.) when the contract is in a totally foreign language?

    6. Several of the ironing “investors” were able to get debt from a financial institution: I understand, many of them from the same bank. Please tell us how the lending officer exercised their duty of due diligence in lending money into a fraudulent arrangement? Has anyone heard of the terms “predatory lending” or “loan pushing”?

    7. It is simple what they do: They go bankrupt. It’s called protection for a good reason. The average indebtedness of Canadians that go bankrupt is $25,000.

    Why would anyone pay off someone else’s unjust enrichment?

    8. Fraud is a foreseeable hazard in business relationships. The head office knew or was reasonably expected to know that one of their “partners” could “free ride” off their 100% owned trademark. If I were a shareholder, I’d be suing the present managers for negligence for failing to have adequate protection of their assets (ie. trademark, accrued goodwill, etc.)

    9. “IF the shirt (glove) fits, you must acquit.” – Johnnie Cochrane & OJ Simpson

    Has anyone heard of the term: “obstruction of justice”? I think that’s a criminal charge although I’m not licensed to practice law in NZ or Canada. I wish the franchisor would come to Canada and help out the Royal Canadian Mounted Police because, God, they sure seem to be good at criminal police investigations. Motivated for sure but even Mr. Lapham deserves a fair trial.

    10. I will leave aside the heuristic, cognitive biases and logical fallacy arguments (ie. hindsight bias, kill the messenger, attack the person not the argument, badges of authority, availability bias, etc.).

    11. So the Minister needs to consult with experts, does she? Where does she go: Right to the franchisor-only trade association, the Franchise Association of New Zealand, FANZ. Smooth move: they’ll have some inside dope on how these things are done and then wallpapered over.

    12. Currently, there are two independent state enquiries looking to put teeth into existing Australian franchise legislation. Check out my 2005 paper, Franchising Opportunism, if you like and then we can discuss how predatory lending and churning could never happen in Kiwi.
    http://www.bakersdelightlies.com/index.html

    Take care out there, they’re not all McWonderful, you know.

    Mr. Les Stewart, MBA
    founder, Canadian Alliance of Franchise Operators
    Midhurst, Ontario, Canada
    lstewartc298@rogers.com

  2. Last time I checked, NZ wasn’t subject to North American Law and I have no idea what the Mounties have to do with this.

    The experts in this case will be the SFO.

    Australian Franchise Operation only has a bearing on NZ law if the legislators decide to follow, there is no guarantee.

    Greenacres and all their franchise operators have been victimised by Lapham just as surely as the 150 complainants have. As you point out the complainants had a limited comprehension of English and therefore the contracts couldn’t possibly be legally binding, to them or Greenacres.

    They are being offered valid contracts. It’s up to them to accept or not and if they accept, they will have to comply with the existing requirements.

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