Amid an ongoing revolt among franchise owners, Rapid Realty is facing a new set of charges that its business is a Ponzi scheme designed to enrich company founder Anthony Lolli and his partners at the expense of his franchisees. Lolli, for his part, said the claims were “laughable” and that he looked forward to writing about their dismissal in his next book.
Sky Financial Group, a Florida-based lender that Rapid Realty recommended to franchisees seeking capital for their startup brokerages, filed a civil racketeering lawsuit against the company in Brooklyn federal court, records show.
The lawsuit, filed under the Racketeer Influenced and Corrupt Organizations (RICO) Act, alleges Lolli and his partners mislead Sky about their business model, which the suit says was organized to develop Rapid’s “skeleton franchise operations.”
“As it turned out, Rapid had little to no existing capitalization and, therefore, was secretly using nearly half of the loan proceeds as Rapid’s operating capital,” the lawsuit claims.
Attorneys for Rapid Realty, however, said the lawsuit is factually inaccurate and are seeking to have it dismissed. And Lolli, who’s dismissed franchisees’ previous claims as a meritless attack on his company’s reputation, is sure he’ll be vindicated.
“In my opinion, this lawsuit is not only laughable – because it’s 10,000,000 percent based on false information – but I look forward to writing about the victorious motion to dismiss in my next book,” he wrote in an email to The Real Deal, alluding to his book, “The Heart of the Deal.”
“I’m swimming in so much proof and evidence against every single allegation they made, that I’m doing a backstroke in it,” he added.
Sky Financial, headed by Adam Green, claims that since November 2016, the company has lent $2.68 million to 25 Rapid Realty franchises in five states. All 25 of the borrowers have defaulted on their loans, Sky claims.
The lender says Rapid misrepresented details about its franchise agreements, failed to provide operational support to the startups and that the $50,000 franchise fee Rapid charges the franchisees left them “severely undercapitalized.”
The lawsuit supports allegations made by at least nine franchise owners, who earlier this year were working on a lawsuit that, among other things, claims Lolli pocketed the proceeds from their loans with Sky to fund what they described as his lavish lifestyle. Kendrick Harris, the attorney representing the franchisees, said they have accepted offers from Rapid Realty rescinding their franchise agreements, and are waiting for guidance from the Attorney General’s office.
Sky’s lawsuit claims that Lolli and his partners – Rapid COO Carlos Angelucci and Raymond Ruiz – repeatedly told the lender that they had an established support system in place to help new franchisees get their businesses up and running within three months. They also allegedly told Sky that they don’t collect a startup fee from franchisees.
But Sky said it later found out that Rapid charged each franchise $50,000, and that nearly half of the loan amounts went to companies that Ruiz had set up to help each brokerage build out their businesses.
When Sky reviewed the receipts for the build-outs and construction, it found they fell short of the amounts the company lent to the franchisees, the lender alleges. Sky said it believes that Ruiz’s companies funneled the loan proceeds into the pockets of the Rapid executives.
The lender is seeking a judgment in court for unspecified damages.
In response to franchisees’ claims, meanwhile, Rapid Realty in February filed a lawsuit against Harris, the attorney representing the franchise owners, and three owners, accusing them of a “malicious scheme” to “destroy the existing and future business prospects” of Rapid Realty.