The state has ordered fast casual burger chain Burgerim to refund $57 million in franchise fees paid by more than 1,500 would-be restaurant operators after finding the Encino company violated California’s franchise regulations.

According to a complaint filed last week by the state’s Department of Financial Protection and Innovation, Burgerim; its founder, Oren Loni, and a third entity called Burgerim Group Inc. were ordered to return all “ill-gotten funds” to current and former franchisees who have not been made whole. The complaint characterizes Burgerim Group as an “alter ego” established by the original company to hide assets from franchisees.

The financial department’s complaint was first reported by Restaurant Business Online.

The department found Burgerim had accepted franchise fees totaling $57.7 million from 1,550 applicants between 2015 and 2019. However, a majority of those franchises never opened. In 2016, the complaint says, Burgerim sold 83 franchises but opened just two locations. The following year saw 312 franchises sold and just 21 opened. In 2018, 452 franchises were sold. Of them, 109 opened.

According to the complaint, franchisees were given unrealistic financing options and false estimates on construction and buildout costs and brokers fees.

“Other franchisees opened their location but had to close due to struggling sales, high food costs, undisclosed back rent owed, little to no profit, and no corporate help with advertising,” the complaint says.

The department ordered Loni to pay an administrative penalty of nearly $4 million for more than 1,500 counts for which it alleged Loni misled franchisees with untrue statements and omission of relevant information – a violation of state franchise regulations.

Enforcing the penalties may be a challenge. Loni reportedly fled the country in fall 2019, cutting off all support and communication from his corporate branch. His whereabouts remain unknown.

It’s a hard fall for the brand that was once hailed as the hottest thing in the fast-casual space.

Today, Burgerim’s website shows about 100 U.S. locations, though many are marked as closed or temporarily closed. It shows Valley restaurants in Glendale, Valley Village, North Hollywood, Burbank, Sylmar, Van Nuys, Northridge, Woodland Hills and Santa Clarita. Of those, only the Sylmar, Northridge, Woodland Hills and Santa Clarita restaurants confirmed to the Business Journal they are still operating. The others had either become other businesses – the Van Nuys location is now a Fat Burger – or their phone lines have been disconnected.