MTY CLAIMS IT’S IN THE RESTAURANT BUSINESS, BUT DERIVING 82% OF ITS EARNINGS FROM KICKBACKS SAYS IT’S IN THE KICKBACK BUSINESS. IT’S PART OF AN ELABORATE SCHEME THAT ADDED $214M TO THE NETWORTH OF CHAIRMAN STANLEY MA.
EMAIL US TO SUBSCRIBE TO OUR MTY FRANCHISE OR STOCK INVESTMENT NEWSLETTER.
The Ethics of MTY Chairman Stanley Ma
Updated on March 17, 2022
Stanley Ma is MTY’s founder, chairman and by far the company’s largest shareholder. MTY is unabashed in admitting that Ma is its “most important shareholder” (PDG pg. 32). In a word, he’s the most powerful person in the company. Thus, decisions by MTY are decisions by Stanley Ma.
We believe Stanley Ma has behaved irresponsibly and selfishly in his duties as chairman. Because he’s always the person seemingly walking away with millions, it appears his behavior is guided by his financial greed.
Following MTY’s announcement of the whistleblower allegations, the company’s stock plummeted. MTY felt the need to hide that its franchise network was collapsing and its underlying economics were steadily declining. Ma’s response was to dispatched CEO Eric Lefebvre and former Audit Chairman Gary O’Connor to make false statements to investors to cover-up this and other information. Later, during an investor conference, Lefebvre acknowledged that MTY’s store closure problem was systemic and vowed to address franchisee profitability. However, Lefebvre attempted to conceal the massive store closures by falsely assuring investors that Cold Stone was growing even though it hadn’t had one positive year of growth since 2007 and had closed 500+ locations in that time.
Forbes later brought to light that his statements were false. This was the first public indication for those who were following closely that MTY/Cold Stone executives may have engaged in reporting false data to the U.S. federal government and other entities.
We believe MTY, Lefebvre and O’Connor’s false statements were intended to cover-up a financial scheme to benefit Stanley Ma. Over the past five years, Ma has substantially added to his already massive fortune by generating tremendous fake value through the use of MTY’s kickback scheme. Consider this: Ma added $214M to his personal wealth in just 18 months during the pandemic. Much of that was derived from kickbacks.
Kickbacks can quickly collapse even large franchise networks and cause underlying financial deterioration. That’s exactly what we see reflected in MTY’s metrics.
MTY paid a questionable $394.2M to acquire 2,879 locations (PDF pg. 11) in 2016. Ma then permitted MTY to take $239M in kickbacks from franchisees to plug gaps in the company’s declining financials. MTY then closed 2,594 locations over the next five years. Initially, acquisitions and later, COVID, distracted investors.
Ma achieved such tremendous wealth appreciation in a short period of time by acting in his own financial interest and to the detriment of franchisees. For example, he and his board increased kickbacks in Q2, 2021 by $5.3 million over the Q2, 2020 total of $13.6 million while the CEO admitted franchisees were strained. The increase was just enough to cover the $4.6 million dividend payment for the quarter, which nets Ma $3 million per year. Thus, MTY is taking money out of pockets of franchisees to enrich Stanley Ma while franchise businesses are collapsing at an alarming rate.
As another example, in early 2020, COVID began to ravage the world and government quarantines shut down thousands of MTY locations. Franchisees struggled to take care of their businesses and their families. At first, MTY appeared sympathetic when it announced a royalty deferral option to “support” franchisees. However, at the end of the second quarter, MTY quietly reported that it was taking $25.5M in back-breaking kickbacks from franchisees (see “Other franchising revenue”, PDF pg. 22) during the same time period. So, Stanley Ma and MTY were making franchisees carry the load all the while—even during the pandemic—as they were pretending to defer some of the franchisees’ burden.
Earlier this year, Ma made a questionable insider trade of $43M while the stock was well overpriced. Because this was after Lefebvre and O’Connor had misled financial analysts and investors on various fronts, we believe this stock trade is similar to the $63M Skilling insider trades in Enron stock, and therefore must be investigated by authorities. It should also be noted that MTY’s fake value earned Stanley Ma a $171M portfolio gain during the one-year period of 8/7/20 – 8/9/21 and a $214M overall money grab ($43M + $3 + $171M = $214M). This was all fueled by kickbacks.
We believe Stanley Ma is playing a dangerous game with individuals the company professes to value. MTY is in serious trouble and it’s all to make Ma, this super-rich man, even wealthier. It’s unremorseful greed! Regulators and prosecutors need to undertake a comprehensive investigation of Stanley Ma and MTY’s activities.
A cover-up “always makes things worse”.