Understanding California RICO:
How It Protects Franchises
from Corporate Fraud
A RICO lawsuit in California refers to the legal action that is taken under the provisions and guidelines set forth in the California Racketeer Influenced and Corrupt Organizations Act (California Penal Code § 186.2 et seq.). This statute was originally designed primarily to combat organized crime throughout the state, aiming to dismantle criminal enterprises and hold their perpetrators accountable. However, it has evolved over the years to include broader applications whereby RICO laws can also be strategically used against corporations and businesses that engage in practices such as fraud, financial misconduct, and other systemic illegal activities that can severely impact consumers and other lawful enterprises.
At the bottom of this article, we will explain how these allegations specifically relate to the operations and business practices of Matco Tools.
What is a California Civil RICO Lawsuit?
A civil RICO lawsuit permits individuals, businesses, or franchisees to bring legal action against a company that is engaged in a pattern of unlawful conduct that has financially harmed them or put them at a disadvantage. Unlike a criminal RICO case, which is typically prosecuted by the government or state authorities, a civil RICO case is initiated by private parties who seek compensation for the damages that have resulted from the illegal activities performed by the defendant.
Elements of a Civil RICO Claim
To successfully bring forth a RICO claim in California, a plaintiff is required to prove that the defendant engaged in:
A Pattern of Racketeering Activity – It is essential for the defendant to have committed at least two or more related criminal acts, often referred to as predicate offenses, which occurred within a 10-year timeframe. Such predicate offenses can encompass a variety of illegal activities, including but not limited to:
- Fraud (notable types include wire fraud, mail fraud, and other forms of financial fraud)
- Extortion
- Money laundering
- Embezzlement
- Securities fraud or lending fraud
An Ongoing Criminal Enterprise – The defendant must also be shown to be a member of an organization, business, or corporate entity that is systematically involved in engaging in unlawful or illegal activities.
Financial Harm to the Plaintiff – There is a necessity for the plaintiff (be it a franchisee, distributor, or a business owner) to provide evidence that they incurred financial damages directly as a result of the defendant’s fraudulent or otherwise illegal actions.
Intent and Knowledge of Wrongdoing – Furthermore, the plaintiff must be able to demonstrate that the defendant intentionally and knowingly engaged in unlawful conduct and profited from deceptive or coercive business practices that are detrimental to others.
Why Civil RICO is Important for Franchisees
For franchisees and business owners, the ability to utilize California’s RICO laws can be pivotal in helping them hold large corporations accountable for engaging in unfair business practices that are detrimental to their operations, which may include:
- Fraudulent billing schemes that misrepresent charges
- Forced purchases of products that were neither requested nor needed
- Misrepresentation in financial agreements that mislead franchisees or business partners
- Retaliation against franchisees who oppose or speak out against corporate misconduct
- Failure to disclose significant financial risks in franchise agreements which can lead to substantial losses for franchisees
- Representing or releasing a software with known flaws or inconsistencies and still charging for the software.
Remedies in a Civil RICO Lawsuit
If a plaintiff is successful in their claims within a civil RICO lawsuit in California, they may potentially receive numerous forms of remedies, including:
✅ Treble damages, which amount to three times the actual financial losses sustained by the plaintiff
✅ Reimbursement for legal fees, making it less financially burdensome for the plaintiff
✅ Court-ordered corrective actions mandated to ensure the cessation of ongoing violations by the defendant
How California RICO Applies to MDBS Issues
In scenarios where Matco Tools’ MDBS software intentionally concealed financial errors, delayed payment processing, or misrepresented credit card transactions, franchisees may find credible grounds to initiate a RICO lawsuit based on these actions. Potential legal violations could encompass:
- Wire fraud through manipulated financial transactions
- Extortion wherein distributors are coerced into paying for fraudulent or inflated charges
- Fraudulent business practices such as the false advertising of a supposedly reliable point-of-sale (POS) system
In addition to the issues mentioned above, Matco Tools states in their Financial Disclosure Document (FDD) that:
“All data provided by the Distributor, uploaded to Matco’s system from the Distributor’s system, and/or downloaded from the Distributor’s system to the Matco system is and will be owned exclusively by Matco, and Matco will have the right to use such data in any manner that Matco deems appropriate without compensation to the Distributor.”
Additionally, all customer data collected by the distributor is also owned by Matco, even after the distributorship agreement ends:
“… all other data created or collected by Distributor in connection with the Matco Distributor Business System, or in connection with the Distributor’s operation of the business, including all data that the Distributor collects from customers and potential customers in connection with the Distributorship (‘Customer Data’) is and will be owned exclusively by Matco during the term of, and following termination or expiration of, the Agreement.”
This means that Matco Tools is solely responsible for any and all data breaches related to MDBS. Matco Tools owns the database and is responsible for all security related to the database on a distributor computer. This is also true for the Thumb (flash) drives that we back up to.
What is classified as a data breach?
A lost thumb drive is a data breach because it means private customer and business information is no longer secure and could be accessed by anyone. Matco cannot account for thumb drives from past distributors (or even current distributors), meaning there are unknown numbers of untracked devices containing sensitive data. These thumb drives are not encrypted, and neither is the database stored on the distributor’s laptop, making the data completely unprotected. This failure to secure sensitive information puts franchisees and their customers at serious risk of fraud, identity theft, and financial harm.
It is estimated that nearly 10,000 Matco thumb drives are unaccounted for, leaving approximately 4 million sensitive records exposed and vulnerable. Many of these records contain personal information used for PSA contracts, including Social Security numbers, Driver’s License numbers, addresses, phone numbers, and credit details—all at serious risk. This massive data security failure puts franchisees and customers in danger of fraud, identity theft, and financial harm, all due to Matco’s lack of encryption and failure to implement proper data protection measures.
Is There Anything Else?
Yes! Did you know that in August 2024, Matco’s attorney, Frank Dicaudo, was notified of a major data breach vulnerability on the MyMatcoTools.com website? This critical security issue was again reported to Matco in December 2024 and January 2025, yet as of April 6, 2025, the server remains vulnerable, leaving your personal and business data exposed to hackers.
Do you remember receiving an email from Matco asking you to change your password for MyMatcoTools.com? That was Matco’s only response to the issue. While updating your password makes sense—especially since Matco provided the same password formula to all users, making it easy for hackers to guess—it does nothing to fix the actual problem. The server hosting MyMatcoTools.com has not been updated since 2022, and even worse, the software running it was discontinued in 2019!
This means the server has had no security patches since 2022, making it a prime target for even a novice hacker to access Matco’s entire franchisee database. More alarmingly, this vulnerability could be an open door into the entire Matco.com domain, exposing even more sensitive data.
And still… Matco has failed to notify customers, franchise owners, or regulators, as required by state and federal laws. Instead of protecting franchisees and customers, Matco continues to ignore these serious security risks, putting thousands of businesses and individuals in danger of identity theft, fraud, and financial harm.
Conclusion
A California RICO lawsuit serves as a formidable legal instrument for franchisees and distributors who have suffered harm as a result of deceptive business practices that might have been employed by companies such as Matco Tools. If the actions of Matco indeed meet the legal criteria for racketeering, fraud, and financial coercion, then affected franchisees may succeed in recovering significant damages while concurrently prompting changes to rectify and improve Matco’s business operations.
For over 5 years Matco has been aware of a vulnerability to the MyMatcoTools.com website. This website is an ntegral part of the franchise owners business. This site hosts personal and financial data and has been breached putting every distributr at risk.
Just like the databreach of the MyMatcoTools.com website, there is a flaw in the MDBS software that exposes every current and former franchise owners’ personal information exposed. This includes: home and business address, cell phone, home phone, financial data, your computer name (making it easier to hack) and other persona business information.
For many years, Matco has known of a software glitch in MDBS3 that causes significant delays in credit card processing along with credit card transactions being marked as authorized in MDBS but later will be denied. This means that franchises do not receive the money but it has been debited in the MDBS account. Since the software is the ame for every franchise, this is an issue that effects every store. It is estimated this causes an estimated $2 million in lost collections for distributors.
there have been many issues pertaining to MDBS3 and pricing. It is estimated that because of the glitches in MDBS software that it has cost an estimated $10 million in lost revenue for distributors. This does not include the thousands of wasted hours distributors faced with MDBS 3 since its coming to market.
There are numerous instances of ordered items not being invoiced correctly, franchise fees being overcharged for new starting distributors, product being automatically shipped from DM meetings with the distributors’ permission, and
Matco has failed to maintain a level playing field. On multiple occasions, they have implemented inconsistent credit terms, shipping terms, and other policies, creating disparities that unfairly disadvantage some franchisees.
Matco Tools has failed to notify the SEC and its shareholders about an ongoing enforcement investigation by the California Department of Financial Protection and Innovation (DFPI). This lack of disclosure raises significant concerns about compliance with SEC regulations, as shareholders have the right to be informed of material risks that may impact their investments