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Cold Stone Creamery

2020 U.S. Franchise Disclosure Document

Updated September 14, 2020

On February 14, 2020, MTY Food Group Inc. (MTY) disclosed whistleblower allegations that were waged against the company and announced that it would delay its fourth quarter earnings report so that the board of directors could investigate the charges. At the time, MTY characterized the allegations as presumptively “baseless and frivolous”. On February 24, 2020, the company issued a press release confirming that the MTY board of directors’ Audit Chairman Gary O’Connor claimed the board researched the whistleblower allegations, they were reported by an “active employee” and it found them to be “baseless” and “dealt with in the past”.

Later that day, MTY held its investor conference call. In his opening comments, MTY CEO Eric Lefebvre also claimed the allegations were made by an “active employee” and affirmed the board found them “baseless” and “dealt with…”. In response to one analysts concerns about the “pace” of CSC’s closures, Eric Lefebvre responded by suggesting that CSC—MTY’s perennial sales leader—is and always will grow its franchises: “obviously, there’s always going to be more store openings than more store closures for Cold Stone just because it’s such a big brand…. [T]hings are going to go well.” On March 9, 2020, Forbes published an article that questioned the truthfulness of Eric Lefebvre’s statement.

Since the February 24, 2020 events, neither MTY, Eric Lefebvre or Gary O’Connor have retracted their statements. Though the company has issued material impact statements relative to COVID-19, it appears the company has not issued any such disclosures related to the whistleblower allegations. In addition, the company has not outwardly made any effort to manage the damage associated with the allegations.

Though Eric Lefebvre’s claim that CSC is growing was directed to securities investors to quiet the negative publicity and declining stock price following the whistleblower allegations, CSC solicits franchise investors using similar claims. Documents show that CSC has not grown in the U.S. since at least 2007 and has closed 500+ stores in the same period. Despite that, the company repeatedly uses statements that suggest its franchise network is growing. “We continue to grow”, “[w]e’ve been growing for years…”, “we have no plans for slowing growth”, “franchises are springing up all over the place”, etc. These false claims are only exaggerated by the company’s suggestion that it’s growth is exceptional: Cold Stone is “still rapidly growing”; “one of the fastest growing franchises”; experiencing “incredible growth”; etc.

On March 27, 2020, CSC published its 2020 Franchise Disclosure Document (FDD). This document is required  and enforced by the U.S. Federal Trade Commission by way of the Franchise Rule. CSC’s 2020 FDD casts further doubt on certain comments by MTY, Eric Lefebvre and or Gary O’Connor in defense of the whistleblower allegations.

The Franchise Rule establishes that a franchisor is prohibited from “making statements that contradict” its requirements. CSC’s 2020 FDD confirms the company again closed more U.S. stores than it opened in 2019—further contradicting statements made to investors by MTY, Eric Lefebvre and or Gary O’Connor.

The whistleblower allegations also include accusations of omissions by CSC. For example, the Franchise Rule also requires franchisors to publish prospective growth data for the year in “Table No. 5” to give “prospective franchisees insight into anticipated growth within the system…”. Without it, franchisors can promote investments using false statements without providing prospective franchisees with the data they need to discover they’re being misled.

As a part of the whistleblower allegations, this website reported to MTY that Table No. 5 was omitted from CSC’s 2018 and 2019 FDD’s. As a result, during each of those years, CSC was able to promote its franchises to potential investors using statements that falsely gave the impression that investors are scrambling to own a CSC franchise: “We’re experiencing unprecedented demand” (not true), “one of the hottest tickets around” and a “can’t-miss” investment opportunity in “high in demand”. By omitting this table, potential investors were denied the federally mandated information they needed to determine they were being misled.

Three months after first notified MTY that Table No. 5 was missing from the previous FDD’s, the 2020 version was issued with Table No. 5 included. This data disclosed that the company projects to open just 9 franchises in 2020. The fact that CSC omitted Table No. 5 from previous FDD’s and included it two months after disclosed the omission to MTY, is evidence the allegations are not baseless.

Franchisee profitability was a major subject within the whistleblower allegations. CSC’s 2019 FDD disclosed that 97 franchisees—10.5% of its total U.S. franchisees—left the system the prior year.1 In addition, the company’s 2018 FDD disclosed that 84 franchisees left the system in 2017.1 The company’s new 2020 FDD discloses that 90 franchisees—10% of its 898 U.S. franchises at the beginning of 2019—left the system the prior year.1 That’s a total of 271 franchisees in three years.1 Notably, this was prior to the effects of COVID-19 on North America so the total will likely increase.

Finally, and by far, most importantly, CSC claims (1) it grew its international locations by 13 stores, and (2) that it currently has 341 international locations.  We strongly believe this is false. We absolutely do not believe that CSC grew internationally by any number, let alone by 13 locations. In the strongest terms possible, we also do not believe they have nearly 341 international locations. Notably, both figures would have been prior to the announcement that CSC’s Singapore franchisee was closing all stores.

Our confidence in the inaccuracy of this data is based on information from two different sources that contradict both claims. We will publish more details on this subject shortly in an open letter to investors. In doing so, we’ll provide an explanation of why we believe this disparity exists and how we think it relates to statements by MTY, Eric Lefebvre and or Gary O’Connor. Other specific details will be included in an investigative news journal to be published next month. We will then publish any relevant details that we feel were omitted from the news journal on this website after it has run.

In closing, MTY paid $394.2 million, in part, for CSC four years ago. At that time, Forbes questioned whether the company had paid too much. Forbes also put MTY on notice that CSC was in decline. Perhaps MTY Despite the numerous false statements that CSC uses to promote its franchise investments, the company’s U.S. locations have been in decline now for well over a decade. In addition, in our opinion, it’s clear that MTY,  Eric Lefebvre  and or Gary O’Connor are knowing making false statements to cover up what the 2020 FDD further proves: the whistleblower allegations have merit.

MTY’s numerous whistleblower allegation changes within its 2020 FDD supports our opinion that these allegations were not reported by an “active employee”, are not “baseless”, are not “frivolous” nor were they “evaluated and dealt with in the past”. We believe MTY, Eric Lefebvre and or Gary O’Connor’s claims to the contrary are false and intended to mislead investors. In our opinion, these false statements are MTY’s attempt at a cover up to avoid liability to shareholders.

More specifically, in our opinion: (1) MTY “evaluated” many of the allegations before they acquired CSC but left them in place to maximize profits; (2) once this website reported them to MTY, the company made the decision to engage in a cover up scheme by denying the allegations and then remaining silent on the issue; and (3) in order to timely file its federal disclosures, sometime during the stock’s plummet from $59.73 to a low of $16.58 on March 18, 2020, without admitting fault or disclosing any whistleblower materiality, MTY elected to quietly make changes to the reported allegations in the FDD in order to maximize profits, avoid further damage to its shareholder value, avoid managerial embarrassment, avoid additional negative publicity and mostly to protect the company and board from potential civil liability due to shareholder litigation. We believe these acts are intentionally adverse to those shareholders that lost $1.1B in value during MTY’s stock plummet—much of it due to the company’s handling of the whistleblower allegations.

In our opinion, CSC’s 2020 FDD proves the company continues to promote investment opportunities while intentionally making false and misleading statements to potential investors. As we reported to MTY in January 2020, those statements are on numerous topics including franchise network growth, total locations, projected future growth, franchisee profitability, numerous components within their federal filings and other topics. At the same time, franchisees continue to leave the system1 and close stores at a high rate. Perhaps MTY believes these false statements are necessary in order to attract a sufficient number of new investors to replace those that are leaving at a high rate.


  1. Includes “[f]ranchisees who had an outlet terminated, canceled, not renewed, or otherwise voluntarily or involuntarily ceased to do business under the Franchise Agreements…” and transferred outlets.

MTY Food Group Executives & Other Photos