BUTTERFLY LIFE: CA Adds Insult to Injury
April 14, 2009 by Sean Kelly
Filed under Business
Two years ago, I posted the question IS BUTTERFLY LIFE A GREAT FITNESS FRANCHISE?
The answer came in a torrent of nearly 500 comments from franchise owners, mostly critical of the franchisor company and owners Mark Golob & Tom Gergely.
Our post Will the REAL Butterfly Life Franchise Please Wave Its Wings? prompted 162 comments, and Troubled Fitness Franchise Butterfly Life Lowers Franchisee Royalties garnered 40+ comments.
The woes of Butterfly Life franchisees were also covered by such publications as Fitness Business Pro (Butterfly Life’s Golob: Failed Franchise Owners Should Blame Themselves), FORBES (Butterfly Life Franchise Lawsuit in Forbes) and FORTUNE (Fortune Article Spotlights Butterfly Life Franchise Woes).
UnhappyFranchisee.com posted interviews with 7 Butterfly Life franchise owners, who told of hard sales pitches, unkept promises and, eventually, failure and bankruptcy.
It was just a matter of time before California franchise regulators swept into action, right?
UnhappyFranchisee.com has posted the Desist & Refrain Order (see BUTTERFLY LIFE: Cease & Desist Order) issued by the California Corporations Commissioner. It states that from May, 2004 to May, 2005 Golog and Butterfly Fitness, Inc. violated CA corporations codes by collecting franchise fees prior to training. It also states that Golob & Butterfly Fitness, Inc. made untrue statements in filing its CA franchise registration renewal.
What’s the penalty? Golob and Butterfly Fitness, Inc. must “desist and refrain” from further violations of CA franchise registration and must “desist and refrain” from making untrue statements in order to sell Butterfly Life franchises in CA.
That’s it.
Funny thing is, Golob has no intention of selling Butterfly Life franchises in CA or elsewhere. He’s already cashed out… and sold (what’s left of) the whole shebang to Diversified Health & Fitness.
This is yet another cautionary tale to prospective franchisees: take due diligence seriously and choose your franchise company wisely.
If you think government franchise regulation will protect you… think again.
WHAT DO YOU THINK? SHARE A COMMENT BELOW.
graphic: FranBest.com
logo: Butterfly Life
In the 30 years since the federal government regulated franchising to protect franchisors against those franchisees who would fail, the franchisors have really figured out how to use “the letter of the law” and the four corners of the contract to perpetuate their systems, even fraudulently, with immunity because of the shield of the FTC Rule.
It is really a slap in the face for BFL franchisees who lost so much and who are now looking for recourse to understand that this man could just walk away and sell the “ashes” of this system to another franchisor and get away with the misrepresentations, etc..under California law with just a slap on the hands.
Sean! What, then, is the purpose of the regulation of franchising if regulatory policy results in just setting up innocent “marks” as resources for the franchisors, who walk away from their “fraudulent inducements” with frequency, and with other people’s money, under the current status quo of the law?
Pretty ugly stuff!
We were already financially behind as my ‘career’ in the tech-industry was in free fall after the tech-bubble burst. After several years of off and on again employment with companies that ended up cutting back, merging or going out of business all together, it was obvious there were too many tech workers like me looking for too few jobs that were never coming back.
I knew it was a gamble to start a business, we had little cash. But the BFL franchise opportunity as presented made it seem as though a successful business – built with hard work and a modest initial investment – was within reach.
I thought it was a gamble – but a good gamble. The truth was we were marks and never had any real chance of success. Mark and son Taylor, along with Tom knew exactly what they were doing and who they were targeting for their scam. We were trying to get business loan through a bank but each time Taylor called to get us to commit he would tell us that would take too long and that we should use our home equity and retirement savings. Eventually he used the ploy that we had to commit or he would have to give the territory away to someone else. (How gullible were we?) And so we made the fatal mistake of taking out a second mortgage and using our retirement savings to start a BFL franchise.
Like most we lost everything and now in our late 50’s, we are broke and our credit is destroyed. The only positive thing is that the recent market crash didn’t hurt our retirement portfolio: Mark, Taylor and Tom already took care of that.
And their punishment for the financial devastation they’ve caused to us and some many others is a barely a slap on the wrist! And now off they go to their next scam and their next marks.
An update on BFL and Mr. Golob…..there will be a hearing at the Deptartment of Corporations in Northern California in July surrounding his “untruths” and taking money from franchisees prior to their completion of training between 2004-2005, due to Golob’s appeal of the original ruling by the DOC, which shut down BFL.
The original punishment was just a slap on the wrist, but at least BFL was forced to sell out to Diversified Fitness, another group to be concerned about! I sense that Diversified was lead to believe there were many franchisees paying royalties than actually were.
The probable cause for his angry appeal is that he will never be able to use his name on any other business he attempts in California. If he moves out of California, we’ll follow him to every state and make known his reputation. Although, his appeal actually worked out well for the franchisees, since we will be able to state our case in person. If you would like your two cents to be heard before the hearing, contact Mary Ann Smith at the Dept. of Corp. at 916-322-6067 or msmith@corp.ca.gov.
NEWS FLASH…..just this minute I received a call from one of Golob’s contractors who built his new house up north. He advised me that Golob is attempting to sue various contractors now for poor workmanship! (could it be because Golob still owes them a great deal of money!?!?!) He’ll try and make money any way he can…..that’s his MO! Here we go again……..stay tuned!
PS – Carol Cross…..you’re awesome!
Any chance of getting copies of any of these lawsuits? How about info/pictures of the house being built? Wasn’t his last house $2.1M or so?
I wonder whose name it’s in…?
PMG —-Thanks for sharing and for trying to warn others.
There is a “blood bath” going on in franchising today and, unfortunately, the targets, as of late, have been the corporate refugees who have some cash and savings that can be accessed by the franchiSORS to experiment in the marketplace with other people’s money with immunity under federal and State regulatory policy. Because the franchisors KNOW that regulation and their contracts protect them from charges of fraud and generally against any breach of contract (they don’t promise much at all in the written contracts)) they are free to exploit franchisees in their own interest.
The latest targets are the VETS and their familiy members who have been made targets of the explotive frnchisors because of the SBA’s PATRIOT EXPRESS LOAN INITIATIVE that was passed in June of 2007 with the purpose of “honoring” VETS and their family members. These loans will now carry a 90-95% government backed guarantee and will produce product in terms of mortgage securities that the banks can sell in the secondary markets.
The RISKS TODAY are greater than ever before because if the VETS and their family members have collateral that can be seized by the government and that was posted for the loans, the banks and lenders will see the value in lending to those OUT OF WORK and looking for a job and profits in terms of a franchise.
I hope you will complain to the FTC on their Site and to the authorities in California because this will put some pressure on the authorities to do something about the ineffective regulation that permits the franchisors to hide the odds of the gamble that is undertaken by new franchisees.
Hang in there and help fight for change! What they did to you was truly MALICIOUS and our government enabled this malice.