While everyone enjoys a nice slice of the pie, Domino’s Pizza has had a corporate insider file a detailed whistleblower report with the SEC against top-level officers and various staff members. This case involves general misconduct and an alleged scheme involving misleading franchisors and fraudulent investments.
On February 19, 2019, the franchise community website Blue MauMau reported that “[a] corporate insider has filed a well-documented whistleblower report with the [SEC] against Domino’s Pizza, its top-level officers, and various staff members.” Domino’s allegedly forced an unapproved advertising increase to franchisees in order to pay a $1.85 billion Securitization Transaction to gain higher stock prices and dividends.
Details of this case came directly from a concerned insider at Domino’s Pizza who noticed the presence of possible misconduct and decided to blow the whistle on this major pizza chain.
The heart of the case began in 2012 when Domino’s proposed raising the money the corporation would spend on advertising and promotion. Domino’s requested all franchisees to agree to an increase of 0.5% for marketing. This would increase its current 5.5% rate to 6%. Many franchisors were under the belief that this shifting of funds would lead to an extra $25 million or about $5,000 for each store of system-wide incremental profits. Dominos’ also stated that for the support of these franchises in this endeavor, they would extend the standard profit-sharing agreement by five years.
However, there was allegedly a hidden agenda behind this shift that leads to even more shady practices. The detailed report from the corporate insider stated that Domino’s was pushing this change in order to increase the value of their own stocks.
Forbes reported on this case and stated that, “Domino’s Pizza began to ‘orchestrate’ a new round of recapitalization on March 15, 2012, with the placement of certain subsidiaries for a $1.675 billion securitized debt facility. The CEO, officers, the board of directors, and employees increased the value of their stock options with stock repurchases and issued a $3 per share special dividend.”
In order for this advertising and promotion amendment to pass, Domino’s was required to get 100% votes from these franchises. While Domino’s claimed they got 99.7% and that they will be funding the three no votes, the true facts were a little less clear. To start 50% of the voters were not under the impression it was voluntary. On top of that 80% felt this would require a 100% support to pass and another 80% thought that they had until December 21st of 2012 for a deadline to pass.
Basically speaking, the reports seem to suggest that Domino’s Pizza allegedly manipulated reports and franchisees in order to gain higher-valued stocks and dividends for those on the inside through an investment scheme.
To make matters even more complicated, Domino’s Pizza CEO J.Patrick Doyle during the 2015 Quarter 4 conference call stated, “In fact, our franchisees recently voted to increase our national advertising spend going forward, upping it to 6% of top line sales from 5.5%. We think this is a positive vote of confidence from our franchisees.” . And when directly asked if this increase was approved across the board, he simply replied “Yes.”
Moving forward, Domino’s Pizza is not only accused of being involved in an investment scheme by an insider whistleblower but if proven true the CEO himself would be at fault for lying and misleading those who have an invested interest in this company.
Any and all companies should always show concern about SEC whistleblower reports due to the fact that the Commission has often displayed how seriously they take these reports, especially from someone who is shown to be an insider of the corporate operations of this company. The SEC has made it clear that it supports whistleblower complaints 100%, and finds them to be an extremely potent tool for those in law enforcement.
Those who are interested in gaining more information about cases like this, or who want to keep up-to-date on the latest legal proceedings, check out the Jeffrey Newman Law Whistleblower Help Center and blog!