Did They Read The Signs?

Mr. Sign in Bohemia, N.Y., deemed itself the ultimate "white-collar" franchise. It said it had "proprietary" software for signmaking, giving franchisees a "competitive advantage." A handout said they could deduct any losses as "active" investors and so wouldn't run afoul of tax-law changes.

That convinced Joseph R. Beauregard, a semiretired anesthesiologist in Northampton, Mass., and his friend Philip Renison, a financial planner, to invest $150,000 for a franchise. "I was looking for something to do in my retirement, and I wanted to make some money," says Beauregard. His stepdaughter, Ellen R. Davis, a CPA, and her husband, Keith, a lawyer and CPA, also slapped down $150,000.

In 1990, a year after opening their stores, both franchises failed--months before Mr. Sign collapsed. Beauregard and Renison lost $220,000, and the Davises lost $371,000. They're suing Mr. Sign Franchising Corp. and some former employees for violations of New York's franchising law and fraud. They claim the defendants engaged in an illegal scheme to sell fraudulent franchises.

Mr. Sign is now defunct, and there is no one to speak on its behalf. The former president, Harold L. Kestenbaum, says in court papers that the Davises were "sophisticated" investors and that Mr. Sign cannot be blamed for their failure. Another explanation: No matter what your credentials, if a deal looks too good to be true, it probably is.

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