Mitzner v. Cardet International , 358 F.Supp. 1262 (1973)

Is a franchise a security when the franchisor selects and controls substantially all aspect of a door-to-door marketing scheme?


he District Court held that the scheme was a security within the meaning of the Securities Act of 1933. The court found persuasive an SEC ruling declaring pyramid programs to be investment contracts, and hence securities. Here, Cardet was calling it's operation a franchise, but it did not have certain hallmarks of a typical franchise operation, such as control of the specific day-to-day running of the franchisee's business. Cardet substantially dictated the method of operation, and solicited recruits based on advertisements touting the minimal amount of effort required to be a profitable enterprise. The operation functioned less like a franchise, and more like a pyramid distribution plan. The court further held that the complaint properly pledged the unlawful involvement of M.L.C. because they acted in concert with Cardet to solicit buyers of the company's unregistered securities.

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Reference Info:Federal, 7th Circuit, Illinois | United States

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