What was the nature of the rescission that The C12 Group was required to offer to the franchisee in Maryland?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
In the Matter of The C12 Group, LLC, Administrative Proceeding Before the Securities Commissioner of Maryland, Case No. 2011-0530. In responding to inquiries from the Maryland Securities Division as a result of an investigation into the franchise related activities of The C12 Group, LLC ("C12"), the Maryland Securities Commissioner ("Commissioner") concluded that grounds exist to allege that C12 violated the registration, disclosure and antifraud provisions of the Maryland Franchise Law and an Escrow Order of the Commissioner, in relation to the offer and sale of a C12 franchise. C12 disclosed that it sold a franchise in Maryland during a time it was not registered to offer and sell franchises in Maryland and that it did not deposit any initial fees paid by the franchisee into escrow account as required pursuant to a 2009 Escrow Order of the Commissioner. On May 15, 2012, the Commissioner and C12 agreed to enter into a consent order whereby C12, without admitting or denying any violations of law, agreed to: immediately and permanently cease from the offer and sale of franchises in violation of the Maryland Franchise Law; promptly file and diligently pursue an application for franchise registration in Maryland; and offer rescission to the franchisee who was sold a franchise in Maryland in violation of the Maryland Franchise Law.
Source: Item 3 — LITIGATION (FDD page 11)
What This Means (2025 FDD)
According to the 2025 FDD, C12 Group was required to offer rescission to a franchisee in Maryland. This requirement stemmed from an administrative proceeding before the Securities Commissioner of Maryland, Case No. 2011-0530. The Commissioner concluded that C12 Group violated the registration, disclosure, and antifraud provisions of the Maryland Franchise Law, as well as a 2009 Escrow Order. These violations were related to the offer and sale of a C12 Group franchise. Specifically, C12 Group sold a franchise in Maryland when it was not registered to offer and sell franchises in that state, and it failed to deposit the initial fees paid by the franchisee into an escrow account as mandated by the Commissioner's order.
As a result, on May 15, 2012, C12 Group and the Commissioner entered into a consent order. Under the terms of this order, C12 Group, without admitting or denying any violations, agreed to several actions. First, they were to immediately and permanently cease offering and selling franchises in violation of the Maryland Franchise Law. Second, they were required to promptly file and diligently pursue an application for franchise registration in Maryland. Finally, and most importantly, C12 Group had to offer rescission to the franchisee who had been sold a franchise in Maryland in violation of the Maryland Franchise Law.
For a prospective franchisee, this situation highlights the importance of ensuring that a franchisor is in full compliance with all applicable state franchise laws and regulations. The rescission offer indicates that the franchisee in Maryland was given the opportunity to terminate the franchise agreement and receive a refund of their initial investment due to C12 Group's non-compliance. This case serves as a reminder of the potential risks involved in franchising and the need for thorough due diligence before entering into a franchise agreement. It also demonstrates the consequences a franchisor may face for failing to adhere to legal and regulatory requirements.