THERE IS A SUBSTANTIAL RISK OF FAILURE ASSOCIATED WITH MTY FRANCHISES. MTY AVERAGED AN 11% CLOSURE RATE IN FIVE YEARS WHILE CHARGING FRANCHISEES $239 MILLION IN KICKBACKS ON TOP OF REGULAR FEES. THEY CLOSED 2,594 LOCATIONS FROM 2016 THROUGH Q2, 2021. KICKBACKS CAUSE FRANCHISES TO COLLAPSE!
MTY’S BOARD MADE FALSE STATEMENTS TO INVESTORS WHILE ENGAGING IN A COVER-UP TO CONCEAL THAT IT WAS REPORTING FALSE DATA TO HIDE THAT ITS FRANCHISE NETWORK IS COLLAPSING. ITS CHAIRMAN, STANLEY MA, SOLD $43 MILLION OF STOCK WITHOUT CORRECTING THE FALSE STATEMENTS TO INVESTORS—POTENTIALLY COMMITTING INSIDER TRADING. MTY THEN INCREASED KICKBACKS BY $5.3 MILLION ON FRANCHISEES AND AUTHORIZED $3 MILLION IN ANNUAL DIVIDENDS TO STANLEY MA.
The Forbes Article
Updated November 25, 2021
This website’s attorney provided MTY with whistleblower allegations that included well over 100 potential regulatory violations in January 2020. On February 13, 2020, a U.S. attorney speaking on behalf of MTY responded and acknowledged receipt and review of the whistleblower allegations. The attorney also warned of potential legal consequences if we published the allegations.
The following day, MTY issued a press release announcing the allegations and made the first of many attempts to cover-up the allegations by claiming they were reported by a “whistleblower employee”. The announcement was followed by numerous negative media publications, and the stock “tumbled as much as 13%, its biggest intraday decline [at the time] since October 2005”. MTY was criticized for its lack of transparency.
Prior to the market opening on February 24, 2020, MTY continued its cover-up by issuing a press release quoting Gary O’Connor, Chairman of the Audit Committee, claiming the board of directors had investigated the whistleblower allegations and determined the allegations were made by an “active employee”, found to be “baseless”, were previously “evaluated and dealt with” and the company can’t provide further details.
During the investor conference later that morning, Lefebvre repeated those claims. Under heavy questioning about the whistleblower allegations and particularly MTY/Cold Stone’s closures, Lefebvre falsely claimed “there’s always going to be more store openings than more store closures for Cold Stone just because it’s such a big brand.” In trading later that day, MTY’s stock soared 9% on the good news despite that Restaurant Brands International Inc., MTY’s nearest competitor, and the market were -1.6% and -2.0%, respectively, and analysts were underwhelmed with MTY’s financial performance.
On March 9, 2020, Forbes published an article questioning the truthfulness of MTY, Lefebvre and O’Connor’s statements. The article was also the first public indication that MTY/Cold Stone executives may have engaged in reporting false data to the U.S. federal government and other entities.
We believe the substantial markets swings after the announcement of the allegations and following Lefebvre and O’Connor’s false statements denying the allegations proves this information was material. Still, MTY failed to issue a material impact statement, which we believe made Lefebvre and O’Connor’s false statements inside information. Chairman Stanley Ma later sold $43M in overpriced stock while investors were in the dark after being misled about what we believe are material facts. We also believe this was insider trading. Prior to Ma’s trade, board member Lefebvre and Orr also traded in the stock.