THERE IS A SUBSTANTIAL RISK OF FAILURE ASSOCIATED WITH MTY FRANCHISES. MTY AVERAGED AN 11% CLOSURE RATE IN FIVE YEARS WHILE CHARGING FRANCHISEES $239 MILLION IN KICKBACKS ON TOP OF REGULAR FEES. THEY CLOSED 2,594 LOCATIONS FROM 2016 THROUGH Q2, 2021. KICKBACKS CAUSE FRANCHISES TO COLLAPSE!

MTY’S BOARD MADE FALSE STATEMENTS TO INVESTORS WHILE ENGAGING IN A COVER-UP TO CONCEAL THAT IT WAS REPORTING FALSE DATA TO HIDE THAT ITS FRANCHISE NETWORK IS COLLAPSING. ITS CHAIRMAN, STANLEY MA, SOLD $43 MILLION OF STOCK WITHOUT CORRECTING THE FALSE STATEMENTS TO INVESTORS—POTENTIALLY COMMITTING INSIDER TRADING. MTY THEN INCREASED KICKBACKS BY $5.3 MILLION ON FRANCHISEES AND AUTHORIZED $3 MILLION IN ANNUAL DIVIDENDS TO STANLEY MA.

The Ethics of MTY Chairman Stanley Ma

Updated on November 4, 2021

Stanley Ma is MTY’s founder, chairman and by far the company’s largest shareholder. MTY is unreserved 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 recklessly in his duties as chairman. Because he’s always the person seemingly walking away with millions, it appears it’s all for his personal financial benefit.

Stanley Ma has permitted MTY/Cold Stone executives to publish false statements to its U.S. federal disclosures for years. He’s also allowed the company to publish dozens of additional false or misleading statements directed at potential investors to make it appear that the franchise was growing when it was in fact declining.

Following MTY’s whistleblower allegations, MTY’s stock plummeted. Ma’s response potentially put CEO Eric Lefebvre and Audit Chairman Gary O’Connor’s careers and integrity at risk and put each in legal jeopardy when he dispatched them to make false statements to investors to cover-up the company’s collapsing franchise network. Later, during the investor conference, Lefebvre attempted to cover up the fact that Cold Stone had closed 500+ locations since 2007 and hadn’t had one positive year of growth in that time.

During the Q&A segment, Lefebvre acknowledged that MTY’s store closure problem was systemic and vowed to address franchisee profitability. However, as analysts continued to probe, when asked about the closure rate of his flagship brand, Lefebvre assured investors that MTY/Cold Stone was growing. A Forbes article revealed that was false.

Despite knowing that Lefebvre and O’Connor’s statements to investors were false, misleading and material, Stanley Ma failed to issue a material impact statement to correct them. We believe, in the absence of such notice, the truthful statements contained in the whistleblower allegations—including some that were specifically addressed and denied by MTY, Lefebvre and O’Connor—remained inside information.

In the course of its investigation following the whistleblower allegations, we believe MTY concluded that its franchise network was collapsing and its underlying economics were rapidly declining. Despite that investors remained in the dark about misleading and material information, Ma then permitted board members Lefebvre and Orr to trade in the stock. Later, just a few weeks after a board member abruptly and unexpectedly resigned and when the stock was well overpriced, we believe Stanley Ma used inside information as a motive to sell $43 million of stock. We believe this must be investigated for insider trading before the statute of limitations has run.

In addition, even though kickbacks can cause franchise networks to collapse, Ma permitted MTY to take $239M in kickbacks from franchisees over the past five years to plug gaps in the company’s declining financials. The company is now paying the price in the form of 2,594 closed locations over the same period. Though Ma knows the damage caused by kickbacks, he and his board then increased kickbacks in Q2, 2021 by $5.3 million over the Q2, 2020 to $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 pays Ma $3 million per year. Thus, MTY is taking money out of pockets of franchisees to enrich Stanley Ma and other securities investors while their businesses collapse at an alarming rate, and many are forced into bankruptcy.

It’s apparent even from the outside that Ma is a selfish person that will not hesitate to put board members, senior management, financiers, franchisees, shareholders and others at risk for his selfish financial interests. The fact that he is able to convince the sophisticated businesspersons who work under him to put their careers, licenses, finances and perhaps even their liberty at risk is not new. The board members and managers that carryout his questionable instructions know that officers “who are complicit in misleading the public, lie to the government, bilk investors out of their money… may personally face criminal or civil penalties and jail time.” The fact that they may have been following orders from Stanley Ma or one of his enablers is no defense.

We believe Stanley Ma is playing a dangerous game with other people’s lives and MTY is in serious trouble. We also believe regulators and prosecutors need to take a close look at Stanley Ma and MTY’s activities.

A cover-up “always makes things worse”.

MTY Food Group Executives & Other Photos