What enhancements to the Liberty Tax Service compliance program were required as part of the settlement order related to Ledgers?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
United States of America v. Franchise Group Intermediate L 1, LLC d/b/a Liberty Tax Service, (Case No. 2:19-cv-00653-RAJ-DEM) filed on or around December 3, 2019 in the United States District Court for the Eastern District of Virginia. The Department of Justice (DOJ) filed a complaint asserting that Liberty Tax failed to maintain adequate controls over the tax returns prepared by its franchisees and failed to take steps to prevent the filing of potentially false or fraudulent returns prepared by its franchises despite notice of fraud at some of its franchisee stores. The primary focus of the DOJ's investigation that preceded the complaint related to the alleged operational wrongdoing of 12 franchisees. Also on December 3, 2019, the DOJ and Liberty Tax filed a joint motion asking the court to approve a proposed settlement order setting forth certain enhancements to the Liberty Tax service compliance program and requiring Liberty Tax to retain an independent monitor to oversee the implementation of the required enhancements to the compliance program; and work with Liberty Tax to make further enhancements to improve the compliance program. As part of the proposed order, Liberty Tax agreed not to rehire John T. Hewitt, under whose supervision the alleged conduct at issue occurred. Liberty Tax further agreed not to grant John T. Hewitt any options or other rights to acquire equity in Liberty Tax or to nominate him to the company's board of directors. On December 20, 2019, the court granted the joint motion and the motion to seal, which fully resolved the legal proceedings initiated by the DOJ. Although he is referenced in the court's order, John T. Hewitt was not a named party to this case.
Source: Item 3 — LITIGATION (FDD pages 11–16)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, the Department of Justice (DOJ) filed a complaint against Liberty Tax Service alleging failure to maintain adequate controls over tax returns prepared by its franchisees and failure to prevent the filing of potentially false or fraudulent returns, despite notice of fraud at some locations. The primary focus of the DOJ's investigation related to the alleged operational wrongdoing of 12 franchisees. As part of the proposed settlement order, Liberty Tax agreed to certain enhancements to its compliance program.
Specifically, the settlement order required Liberty Tax to retain an independent monitor to oversee the implementation of the required enhancements to the compliance program and work with Liberty Tax to make further enhancements to improve the compliance program. Liberty Tax also agreed not to rehire John T. Hewitt, under whose supervision the alleged conduct occurred. Additionally, Liberty Tax agreed not to grant John T. Hewitt any options or other rights to acquire equity in Liberty Tax or to nominate him to the company's board of directors.
These enhancements and restrictions were part of a joint motion filed by the DOJ and Liberty Tax, which the court granted on December 20, 2019, fully resolving the legal proceedings initiated by the DOJ. While John T. Hewitt is referenced in the court's order, he was not a named party in the case. This settlement indicates a focus on improving oversight and preventing future fraudulent activities within the Liberty Tax franchise system.