The state of Indiana ordered I Heart Mac and Cheese to pay hundreds of thousands of dollars’ worth of sanctions and stop franchising in the state after finding the company violated numerous franchise rules, according to an administrative order last week.
In a sweeping, 132-page order, the Indiana Securities Division cited I Heart Mac and Cheese over a litany of violations, including disclosure violations, operational problems and misleading or omitted information on the costs and risks of running the franchise.
Indiana Securities Commissioner Marie Castetter handed down the order last week.
The commissioner issued a total of $377,500 in monetary penalties. That includes $80,000 in civil penalties and $297,500 in refunds and recission payments to franchisees in the state that have been affected by the violations.
Castetter also said that the company and its management must stop selling franchises in the state.
In 2023, Indiana demanded that I Heart stop selling franchises, citing the franchise with numerous violations of state securities rules. The state filed an administrative complaint against the company last year.
Restaurant Business first reported problems with the franchise system in 2020 after many of the people who signed onto the brand couldn’t get stores open while some filed for personal bankruptcy and others filed lawsuits. Operators complained about aggressive franchise sales, rosy sales projections and understated opening costs.
Franchisees in 2024 complained that they received expired or even “moldy” cheese, which I Heart blamed on a distributor.
Indiana’s order cites numerous disclosure issues, notably the failure of I Heart to ties of its owners and management to a previous concept, Cabo Flats, which faced a number of legal issues of its own in Florida. Multiple members of I Heart’s management team, including founder and CEO Stephen Giordanella, were involved in Cabo.
The state also said that the company didn’t disclose that litigation and other lawsuits involving the management team’s prior businesses.
Franchisees also cited an aggressive sales pitch that often understated the cost of buildout and operation and overstated the sales the restaurants could generate.
I Heart often recruited franchisees through Facebook and other social media sites and pressured prospects into signing quickly, according to the order.
One multiunit operator, Matt Griffin, testified that he lost roughly $1 million, including a $500,000 SBA loan and monthly operating losses at its restaurants.
Griffin also testified that he once received a five-gallon bucket of cheese sauce with mold around the edges.
Giordanella testified that the pandemic hurt restaurant economics, as did interest rate increases, and said that any disclosure issues were mistakes, misunderstandings or were handled by attorneys or accountants.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.