Being Illegal - A California Cautionary Tale
Business By FromScratchSF Updated 23 Jan 2013 , 7:01am by howsweet
I have to vague on company names, the people and the product sold, but this is 100% true.
I am friends with someone that is very successful wholesaling his product to over 30 venues across California and Washington state as well as operates a very successful storefront here in SF. Let's call him "Dave", and lets say he sells "soda". He just opened a 2nd storefront with the idea to have this storefront specialize in a certain dessert product in addition to his "soda". So he decided to partner up with another very successful person, lets call her "Maude" and lets say she makes "marshmallows". "Maude" has been in business for over 6 years, has been on the Food Network, sold her product nationally in Whole Foods and other stores, has won national competitions and so on. I'm not making this up. She is known.
2 months ago "Dave" got a visit from the HD and an FDA inspector. Apparently "Maude" has been making her "marshmallows" out of her house and of course, "Dave" had no idea. Allegedly, "Maude" filed some of the required paperwork when she started several years ago, but she stopped paying her fees and submitting her product for review to be sold after her 1st year in business. She apparently turned her home home into a "marshmallow" making factory and fabricated her nutritional labels and yearly FDA paperwork. She is in massive debt, and although her product was top-notch, she long ago made the decision that paying taxes paying her licensing fees, and filing her paperwork was secondary to paying these debts.
My friend "Dave" was threatened with a $100,000 fine and 3 years in prison if he didn't pull her product immediately and surrender it to the FDA inspector. Her product vanished from the shelves of Whole Foods (and other stores) within 24 hours.
To say the least, "Maude" is in a lot of trouble, and we (those that know her and the situation) will not be surprised if she gets federal jail time.
Many of us talk about how much trouble one can get into by trying to fly under radar and not do whatever is necessary to follow the laws of our areas, but rarely does anyone post that they actually KNOW someone who got in trouble for not being legal, and since this is such an extreme situation I had to share.
I mean, seriously, I can't imagine having the stones to fabricate FDA paperwork!!!
It's an interesting story. Thanks for posting it, but I'm not sure it's a cautionary tale. Not being licensed seems like the least of Maude's transgressions.
Maude is certifiablly insane or really desperate. Not sure why she thought shed get away with tax evasion, fraud, etc. for long.
Well, "cautiuonary" because a lot of people here make and sell stuff under the table... this IS an extreme example of getting busted, but the fines and penalties would be the same for someone doing it under the table. I dunno, after hearing all about it I did a double check of all my stuff to make sure there was nothing I missed for my business 
Maude should be more worried about the IRS than the FDA.
SF, it's always good to double check to make sure your in compliance with all applicable laws and regulations, I don't think Maude's problems were due to overlooking things. I'm not from CA, but i suspect that the severity of the punishment that Maude is facing (setting aside her false statements to the FDA and the tax evasion charges) for baking out of an unlicensed kitchen is due in great part to the fact that her goods were served to potentially tens of thousands in several states, or perhaps nationwide.
I think most illegal bakers who read these forums are aware of the risks. I just don't think winding up like Maude is a very likely risk.
I guess my main point is that people think the punishment is a slap on the wrist when that's not always the case. I've never heard of or seen the punishment be this severe before (of course I've also never heard of anybody doing anything so stupid). It just made it very real to me that what we do has very real consequences when we color outside of the lines.
I think the reason why people who sell illegal won't see it the same, well, cause it really isn't. "Maude" actually went on national tv and sold her product in a national chain store. This is far from the typical I sell cakes illegally and don't even advertise it. This person was screaming what they sold out loud, in front of the entire country. Now I am not promoting to sell illegally, but this just isn't the same thing people talk about on here.
And Jason is right. The IRS is going to get her a--!
I don't think that this kind of thing is as uncommon as some of you seem to think it is...VA has a cottage food law for baking now, but before that there were plenty of people who were operating illegally right out in plain sight. I personally spoke to a few of them telling them that they should get legal, and it wasn't so hard. I got a lot of "Oh, I know, but I don't want to go through the process..." in response. In the meantime, they continued to hand out business cards everywhere they went and advertise online. They were fully aware thay they were operating illeglly but didn't feel like filing the paperwork to make it legal.
There are laws in place here about catering, and people will still get busted by the caterer I know who turns illegal caterers in. He says that the best place to find people to turn in is to look around at costco and see who's loading up their flatbed carts full of supplies. He asks them if they're caterers then gets their business cards, goes home to look up whether they're legal, and turns them in if they're not.
My pont is that the story is a little "larger" than someone who stays local, but there are plenty of people who are illegal and just feel like they don't want to go bother through the process of getting legal for whatever reason. "Maude" might have been bolder than others by going on tv etc, but she's not alone in the idea that she was above following the rules.
and yeah, she'd better get ready to kiss her a$$ goodbye when the IRS gets a hold of her.
In my area, the HD tries to work with illegals to either shut down or comply because the cosequence is police involvement. So don't be so sure what the sanction is until you ask or look it up.
I do know the sanctions in my area. That's why I said what I said. Even you said your area is either helping them comply or shutting them down, not putting them in jail.
I don't think that this kind of thing is as uncommon as some of you seem to think it is....
My pont is that the story is a little "larger" than someone who stays local, but there are plenty of people who are illegal and just feel like they don't want to go bother through the process of getting legal for whatever reason. "Maude" might have been bolder than others by going on tv etc, but she's not alone in the idea that she was above following the rules.
I don't think anyone who reads these boards is under the belief that there arent lots of unlicensed bakers. There are posts about it almost every day. I just don't think that Maude's story is anymore a cautionary tale for most unlicensed bakers than a story about a serial ax murderer who is finally arrested would be. We debate the morality/risks of baking unlicensed all the time here, and again, I don't think Maude's sad story advances the debate any.
I don't think that this kind of thing is as uncommon as some of you seem to think it is....
My pont is that the story is a little "larger" than someone who stays local, but there are plenty of people who are illegal and just feel like they don't want to go bother through the process of getting legal for whatever reason. "Maude" might have been bolder than others by going on tv etc, but she's not alone in the idea that she was above following the rules.
I don't think anyone who reads these boards is under the belief that there arent lots of unlicensed bakers. There are posts about it almost every day. I just don't think that Maude's story is anymore a cautionary tale for most unlicensed bakers than a story about a serial ax murderer who is finally arrested would be. We debate the morality/risks of baking unlicensed all the time here, and again, I don't think Maude's sad story advances the debate any.
Well, that's true, if someone doesn't care then it won't sway them. But I think that a lot of times people dismiss stories of someone beign caught with an attitude of "that's just hearsay." Since this is being reported by a first-hand observer, it might make someone actually go get legal, which isn't a bad thing.
Well, that's true, if someone doesn't care then it won't sway them. But I think that a lot of times people dismiss stories of someone beign caught with an attitude of "that's just hearsay." Since this is being reported by a first-hand observer, it might make someone actually go get legal, which isn't a bad thing.
Yes, that's part of my point - but another point I have is for those of us that buy stuff wholesale or partner up with another business to sell our goods (which lots of us do ALL THE TIME at farmer's markets, bake sales, cafes, food trucks, fairs...). You can't just assume the other business follows all the rules, and by partnering up or buying their product it can open YOU up by association. So when I say it made me want to double check my stuff I didn't necessarily mean me... I know MY business, but it also made me want to verify other businesses I work with or buy wholesale from regardless of my relationship with them, and it will make me be cautious in the business relationships I enter into in the future. I can care less what happens to Maude, the liar and criminal, (except in a train-crash-sort-of-way), but I care a LOT about what happens to my friend Dave, who was just totally taken advantage of by someone he thought was a friend, lost $20,000 in product that was confiscated, another $50,000 in renovations that he did specifically to sell this product, has an empty store so he's loosing hundreds in sales every day, and is scrambling trying to re-vamp that business plan. Not to mention freaking out because he is dealing with some scary stuff that threatens all his business and now has a tarnished reputation by association with Maude. He's already gearing up for the inevitable State and IRS audit so he has 2 independent bookkeepers combing his books for any little thing that could get him in trouble and has retained an attorney just in case. If he wasn't already successful in his other ventures he'd be ruined.
If you don't find a message of caution then I blame myself for not expressing myself more fully in the original post - but I see CAUTION in in bold letters all over this.
Ok-I'm just dying to know who "Maude" is.
LOL, when the smoke clears and she gets fully busted I'll post her name. Right now her website is still up, she's still taking internet orders, just had a write-up in a huge national publication and just last week did 3 large events selling her product. Dave told me her attorney is hard at work trying to save her butt. I dunno, maybe he will.
Of course feel for Dave and I hope that he will come out ahead in the near future. However, why would he not look and ask for proof of being legal as a matter of course for his business venture with Maude this is truly a cautionary tale for not solely the illegal home baker but for anyone entering into an association or business venture with friend, family or acquaintance.
Of course feel for Dave and I hope that he will come out ahead in the near future. However, why would he not look and ask for proof of being legal as a matter of course for his business venture with Maude this is truly a cautionary tale for not solely the illegal home baker but for anyone entering into an association or business venture with friend, family or acquaintance.
I'm only posting on this topic because the research analyst in me is going crazy that I can't figure out who Maude is through google. So I just want to get the notice when you follow-up. Thanks! 
Of course feel for Dave and I hope that he will come out ahead in the near future. However, why would he not look and ask for proof of being legal as a matter of course for his business venture with Maude this is truly a cautionary tale for not solely the illegal home baker but for anyone entering into an association or business venture with friend, family or acquaintance.
But why would you think to do that? Say you were opening a cafe and you contacted Joe's Popular Bread Company to supply the bread for your sandwiches, would you ask them for their paperwork to make sure they are legal? And then would you contact the issuer of the paperwork to make sure it's valid? Doubtful. You'd assume since they are a separate business operating for over 6 years and they supply bread to several other cafes in town, you'd assume it was A-OK to work with and sell their product.
But again, if you dismiss this as an improbable situation or whatever, that's fine. To me this has opened my eyes to something we all just take for granted, not to mention how serious the penalties are for all involved.
SF, we are in agreement that Maude's story should be a cautionary tale about doing diligence of your potential business partners. Dave invested @$70K without even a factory visit.
SF, we are in agreement that Maude's story should be a cautionary tale about doing your diligence of your potential business partners. Dave invested @$70K without even a factory visit.
I agree with you. That was poor research on Dave's part. When I show up at a venue, they ask for my licnese and insurance. The caterer that I work with asked to see my paperwork, as well did I ask them. So yeah, if I am about to invest 70K into somebody, how do I not ask them any questions about them?! Just cause you think they are establsihed, you don't ask questions? If that's the case, I got some prime real estate for pennies on the dollar in the Bahamas.
SF, my diligence on a bread supplier that I could easily change and that I did not have to pay a large sum upfront would be very different than my diligence on a supplier that required me to make huge investments and changes to my business.
I'm only posting on this topic because the research analyst in me is going crazy that I can't figure out who Maude is through google. So I just want to get the notice when you follow-up. Thanks!
I googled several bits of info in the original post as well and came up with nothing either.....except a whole lot of Bethany Frankel! LOL!
Google will get you nowhere - sorry gals Maybe if I lived in a small town you might be able to piece together who I'm talking about, but SF is huge with lots of famous foodies. There has been no press about this which is why I'm being super vague.
And because I'm being vague it makes it hard for me to fill in some blanks that I am biting my tongue over. But I'll just say this: sure, Dave now knows to trust nobody now, but he's known her for years, she has sold her product thru Whole Foods for years, she has been on TV multiple times, and she has been written up in several national publications. It's not like she's, well, me... a total unknown.
She's not a famous as Bobby Flay, but seriously, if you decided to go into business with him selling his prepackaged and labeled BBQ sauce that is also available at several other retail locations, and wanted to make your own product at your new retail store featuring "Bobby Flay's BBQ Sauce", would you demand a "factory visit"?
I can say I'm regretting posting this thread to begin with, that's for sure.
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