part THREE

How Gravity Payments CEO Dan Price
Commits Fraud.

Dan Price is the "Celebrity CEO" of Gravity Payments, a Seattle-based payment processing firm with satellite offices throughout the U.S.  His $70k minimum wage policy in 2015 ignited a media frenzy.  And whether it was Bernie Sanders publicly lauding Price's gesture or The United Nations inviting him to speak about "the intersection of business, youth, ethics, and international development," to this date, Price continues to reap significant professional and personal benefits.

As many have learned over the preceding months and years, however, not everything in business, politics, and life is as it seems.  This happens to be the case with the enterprising Mr. Price.

Following an 18-month investigation, Hundred Eighty Degrees alleged that Dan Price, the now ubiquitous CEO of Gravity Payments, willfully "misclassified/miscoded" merchant contracts in order to gain an "unfair competitive advantage," which in legalese is defined,  "Any fraudulent, deceptive, or dishonest trade practice that is prohibited by statute, regulation, or the Common Law."  In doing so, Price and Gravity break rules established by credit card brands and card issuing banks, the same rules by which all such payment processors are expected to abide.  Allegations include:

  • Price willfully and fraudulently misclassifies/miscodes restaurant merchants as bar merchants to both gain an unfair if not indomitable competitive advantage and ultimately garner revenues for Gravity Payments and thereby himself; bars pay lower transaction fees than restaurants, in some cases, significantly so.
  • Price, his sales reps and underwriters never advised restaurant merchants that they were classified as bars which thereby places said restaurants in an an unsuspecting role to fraudulently process lower credit card rates and carry out Price's scheme.
  • Price's scheme can force said restaurant merchants to be held liable for fraud up to $10K per transaction per month, year over year, as well as other penalties that preclude them from processing credit cards in the future.
  • Price claims to be "the most trusted" small business processor that offers full transparency and simplicity when, in fact, he fails to disclose critical if not standard information on his merchant statements in order to obfuscate his scheme.
  • Every time a card is swiped at a misclassified/miscoded restaurant, said merchant owner is subject to fraud and fines.
  • The dollar amount associated with fraudulent transactions processed by misclassified/miscoded restaurants is likely, on the low end, tens of millions of dollars, and on the high end, well over $100 million dollars.
  • Card brands, card issuing and acquiring banks, and Prices' strategic partners such as Wells Fargo and First Data Corporation, should regularly audit processor practices and actively prosecute or penalize when wrongdoing is proved.
  • The IRS and local and national liquor boards should levy fines and penalties when wrongdoing is proved.

Hundred Eighty Degrees has decided to release a list of merchants that it has thus far determined to be willfully misclassified/miscoded bY Price and Gravity Payments.  The primary reason for this decision is to prove that such merchants do exist in Price's primary territories while not in others.  Also, the balance of this article proves that Price's Facebook explanation is erroneous. NOTE: A PREVIOUS LIST ATTACHED BELOW INCLUDED 400 MERCHANTS.  HOWEVER, THAT NUMBER HAS SINCE RISEN TO OVER 1,000 WITH THE MAJORITY IN WASHINGTON STATE ALONE.  THE UPDATED LIST IS AVAILABLE BELOW.   HUNDRED EIGHTY DEGREES BELIEVES THE ULTIMATE TOTAL TO RANGE BETWEEN 5,000-7,000 SUCH MERCHANTS.

Incidentally, Hundred Eighty Degrees has determined that a considerable portion of these fraudulently coded/classified restaurant merchants are ethnic in nature, largely Asian and Mexican.  We will attempt to determine if/how a language barrier makes it easier for sales representatives to push a merchant into a fraudulent processing arrangement or if this is just a simple matter of Asian restaurants representing a larger market share in regions such as Seattle.

Price has recently placed reps in markets such as Thousand Oaks, CA (the outer regions of Los Angeles) and San Francisco, therefore, those markets have received and will receive far less attention at this time than primary sales territories such as Seattle, Hawaii and Portland.  In addition, numerous restaurants in markets such as San Diego and Boise have been withheld in order to determine, with absolute certainty, that they belong on this list. 

Incidentally, assistance from additional sources has led to discovery of other antitrust instances beyond the restaurant category, such as food purveyors (butchers, small counter food and sundries, etc.) classified as grocery stores.  More to come on this.

Click here to download list.

Once the investigation published on January 29, Hundred Eighty Degrees sought comments from credit card brands, card issuing banks, Price's merchant (sponsor) banks (Wells Fargo and BMO Harris Bank), and also First Data Corporation.  Wells and BMO Harris are, "federally insured financial institutions responsible for connecting merchants to Visa Inc. and MasterCard Worldwide authorization and settlement systems.... also called an acquiring bank, merchant bank or sponsor bank."  In other words, Price must establish a strategic alliance with these institutions in order to offer processing services to merchants.  First Data has a global footprint of 6 million merchants, the largest in the payments industry.  They handle 45% of all US credit and debit transactions, and Price acts as an independent sales organization to market their processing platform to merchants.  The Electronic Transactions Association, the processing industry's leading trade association, and The Strawhecker Group, the industry's leading advisory body, were also contacted for comment.

Other than a few boilerplate statements, every party contacted thus far has elected not to comment on whether there is an investigation afoot or if and how Price's actions should be pursued.

I asked Wells Fargo Communications Executive, Jim Seitz, the following questions:

  • Is an ISO like Gravity subject to periodic audits by Wells similar to how other sponsor banks audit their ISOs?

  • When was the last time you audited Price?  Or have you ever?

  • Are you currently conducting an investigation on Mr. Price and Gravity?

  • Are you aware that Price is miscoding his restaurant merchant contracts and thereby leveraging his/your merchant accounts in order to process fraudulent transactions?  This has been proved.

  • Since Price is proved to be miscoding contracts in order to gain an unfair competitive advantage, and gain more merchant accounts, and short Issuing Banks their proper interchange, what kind of penalties or processes would/will Wells subject him to?

His reply:

"Wells Fargo sponsors a number of Independent Sales Organizations (ISOs), such as Gravity Payments. Organizations that are registered ISOs of Wells Fargo are able to access the Visa and MasterCard payment networks and offer payment processing to their customers through our sponsorship. The sponsorship of ISOs is a standard practice within the payments processing industry. Well Fargo informs and requires its ISOs to abide by payment network rules.We have extensive procedures in place to ensure third-party processors and independent sales organizations (ISOs) comply with our policies and payment network rules, yet we do not discuss our practices and procedures in detail. Due to customer confidentiality, we cannot provide further comment."

I have called and emailed Price's other Sponsor/Acquiring Bank, BMO Harris.  No reply to date.

I spoke with First Data Corporation Communications representative, Hally Sheldon who said she would share my requests with her team and issue a response.  No reply to date.

I exchanged with Jason Oxman, CEO of the Electronic Transactions Association (ETA) "the international trade association serving the needs of organizations offering payment technology products/services."  In other words, the ETA is the industry's leading policy and advocacy body.  Here were my questions:

  • As the self-described "principal representative of the industry" please advise how processors who do effect fraud should be handled by Issuers, Card Associations, federal authorities and/or the ETA, especially since you "advance the technology, safety and security of payments every day."

  • ETA's "Voice of Payments" platform is the self-described "leading source of credible industry information for government officials making legislative and regulatory decisions impacting our industry."  Since this is the case, what responsibility do you and the ETA have to inform and convince such stakeholders that a processor like Gravity Payments is an anomaly and that the industry is well-policed from the inside and the outside?

  • The ETA published a white paper titled "A Practical Approach to Acquiring Risk Management."  It's downloadable from your site.  An entry on page six reads, "External Fraud Risk: The risk that an unauthorized entity/individual(s) commits fraud against the company or uses the company system to commit fraud. This includes compromised merchant or reseller accounts, theft of card account numbers, bank account numbers, or other sensitive information; extortion, theft of intellectual capital, etc."  How does a merchant protect itself from the external risk of a payment processor who leverages said merchant to exact fraud?

 Though Mr. Oxman is able to answer such questions beyond the context of Gravity Payments, he responded accordingly:

You originally asked me to comment on your investigation of Gravity based on your assumption that Gravity was an ETA member and therefore we would have familiarity with the company.  I responded that Gravity is in fact not an ETA member and that we have no comment.
You are now asking me additional questions, and having had the benefit of reading your article, I know that all of your questions are still asked in the context of Gravity.  Thus we still have no comment.
I understand you are pressed for time as you are publishing today, and I appreciate your reaching out to us.

The Strawhecker Group is the leading management consulting company for the payments Industry.   TSG clients include merchant acquirers/ISOs (like Gravity Payments), issuers (like Bank of America, Capitol One, Citigroup, etc.), the card brands, technology and mobile companies, processors, major merchants, bank specialty lenders and private equity firms, as well as banks and financial institutions.  Founder and principal, Jamie Savant, was interviewed for the initial investigation about Price and about industry standards and practices.  This was Mr. Savant's response to my request for follow-up comments regarding the now released investigation.

Hi Doug,
I am on back to back calls today , sorry

I have left numerous voice and email messages for Visa's Senior Director of Global Corporate Relations, Sandra Chu without reply.  I have also left messages for other appropriate Visa staffers.

Processing companies and independent sales organizations across the country are paying close attention to the way this matter is handled by Wells Fargo, BMO Harris, First Data, the card brands, merchant/acquiring banks industry authorities and gatekeepers.  If widespread fraud is substantiated, Price and Gravity are on the hook for enormous fines and other penalties that yield potentially lethal consequences for his operation.  According to card brand rules, Price's restaurant merchants are also potentially on the hook with the same consequences in tow.  However, if no further action were exacted upon Price or Gravity Payments, a number of processors with whom Hundred Eighty Degrees has had extensive interviews and who are industry heavyweights, have stated that they will voice hearty and sustained disapproval over inaction.  Some have gone so far to say that such inaction may very well invite even further violations of the same manner.

Much more on this to come.

Two days after the investigation On Sunday, January 32, Visa blocked its Visa Supplier Locator tool, the same tool that Hundred Eighty Degrees used to crosscheck its allegations that Price misclassifies/miscodes restaurant merchants.  The Supplier Locator is a massive database of merchants who accept Visa throughout the United States.  Based on certain criteria selected by users,the Locator unveils merchant contact information, business type including a four digit MCC code which classifies the business (restaurant, bar, dry cleaners, grocery store, etc.) and other data.  (Explanations of the MCC code and its critical role in this investigation are available here.)  Though this information is availed to the public, it somehow suddenly became unavailable following the release of the initial report released herein.  At this time, Visa has refused to comment as to why the site was blocked for 3 days.  Incidentally, numerous parties, including Entrepreneur and Geekwire have confirmed that it was blocked and have expounded upon overall allegations.

The site briefly became available for a few hours on Tuesday, February 2 before being blocked again - it remains this way at the time of this report.  During the few hours that site was operable, Hundred Eighty Degrees double-checked as many original findings as it could and found that Gravity restaurant clients remained misclassified/miscoded.  Below are screenshots of some of those misclassified/miscoded restaurants.

It is critical to note that Price IS ABLE TO change the erroneous MCC code of 5813 (INDUSTRY CLASSIFICATION) to the proper designation (5812) for all of his miscoded restaurants.  He OR HIS STAFFERS can EFFECTUATE this at any time, and such changes BECOME AVAILABLE within 24 hours.  THOUGH UNLIKELY, It is nonetheless possible that price complained to visa that the information recorded on its supplier locator was somehow incorrect Thereby forcing visa's hand to pull the site. 

Processors and their sponsor banks are ultimately responsible for providing correct information to card associations.

I spoke with the Office Manager of Il Bistro, a Gravity Payments merchant located in Pike Place Market.  His name is being withheld, but he confirmed that Il Bistro is a restaurant, its primary business is food, and he handles the books.  At the time of this article, Il Bistro continues to be coded as a bar by Gravity Payments.

Andy Ruggles is the General Manager of Agrodulce, a Seattle-based Italian restaurant owned by James Beard Award winner, Maria Hines.  Ruggles said, "We've contacted Gravity and are confident that our MCC code is categorized correctly.  Dan Price stated to us that any fines or fees regarding this issue would be the responsibility of Gravity Payments and not Agrodolce.  I also have an email stating this from a customer service specialist."  Apparently, Ruggles has only spoken to Price and Gravity, not to any independent industry authorities.  At this time, it is also unclear if he has read the investigation.  Regardless, based on the above statement, Price maintains that he has not committed fraud while records prove he has.

Matt Janke co-owns Seattle's Lecōsho and was interviewed for the initial Hundred Eighty Degrees piece on Price.  While Janke expressed frustration over the manner in which the initial investigation was written, he did, however, request further explanation as to the alleged scheme and such information has since been provided.

Full disclosure: I have owned and operated a small business - combination art gallery-café - and fully understand challenges that rear their ugly heads long the way.  That said, this scenario of willful fraud is especially dispiriting to hardworking restaurant owner-managers like Matt Janke, Brian Canlis, Andy Ruggles and myriad others, since it is wholly avoidable.  All a processor has to do is properly process its merchants in the first place and practice what they preach in terms of transparency.  Credit card processing itself is not the culprit.  It is both a complex and critical component of every local, regional or international consumer-facing enterprise.

In an apparent defense of the allegations made by Hundred Eighty Degrees, Price made a curious public statement via his Facebook page but neither named Hundred Eighty Degrees nor its investigation.  This line is critical.  "There are also businesses whose primary business is beverages and food.  In their case, there are two categories that describe their business equally well (5812 and 5813).  In this case, the business should choose the category code that best suits their business."  Not only is this statement clearly false, it also shifts blame and accountability squarely to the shoulders of the restaurant merchant, not Price nor Gravity.  In fact, Gravity underwriters (and reps to a degree) are responsible for doing extensive due diligence in order to properly classify and reduce risk for its merchants.   Price has made it his mission to tell and sell anyone who will listen that "transparency" and "truth" are the very cornerstones of his operation.

Price's FACEBOOK Post is Here.

Contrary to what Price claims, the following excerpts represent the truth about operating practices, including Merchant Category Codes (MCC), Interchange fees and accountability.  The document known as Visa Core Rules and Visa Product and Service Rules is Visa's 848 page manifesto.  Where Visa mentions "Acquirer" or "Member" this denotes Price/Gravity Payments and by affiliation his Acquiring/Sponsor banks, Wells Fargo and BMO Harris Bank.


The above means that Price and Gravity Payments are responsible, NOT his merchants as he falsely claims in his Facebook post.  And by "staff members," this includes Gravity Payments sales reps, underwriters, finance managers and Dan Price.

The above means a Seattle restaurant like Canlis or Agrodulce or Lecōsho must generate more revenue from liquor than from food in order for Price and company to be able to classify them as bars and thereby grant them lower transaction fees.  Clearly, this is not the case.

Based on these descriptions, the above means that Price fraudulently misclassifies/miscodes restaurants as bars.  Furthermore, there are plenty of establishments that include the word "bar" or "pub" in their names, yet generate more revenue from food than they do from liquor.  Those establishments must be classified as 5812, Restaurants, and there are myriad examples of this obtainable via the Visa Supplier Locator, if it would only come back online.

The establishments that Hundred Eighty Degrees identified as fraudulently misclassified/miscoded do not fall into this category.  There are, however, approximately 20 that appear on the Visa Supplier Locator as two separate entries, one as 5812 and a later entry as 5813.  A source within the industry has since claimed that such accounts were previously 5812 (Restaurants) but switched to 5813 (Bars) thereafter by Gravity Payments once Price and company outbid their competitors.

The above means that Visa has the right to investigate and audit Price and his Sponsor Banks (Wells Fargo and BMO Harris) at any time based on information such as that which has been provided herein or which comes from other sources.  Though Hundred Eighty Degrees has contacted Visa to request any information about an investigation, Visa has not provided comment.


The above means that Price and company and his Sponsor Banks must do due diligence on their merchants - including proper - classification/coding of MCCs - before they lawfully contract with them.  Clearly, this is not the case.

Bullet #5 specifies that the MCC assigned by Price and company and his Sponsor Banks must be properly supplied to Visa.  Clearly, this is not the case.

The above means that Card Issuing Banks can hold Price and Gravity Payments and its Sponsor Banks liable for their misclassifying/miscoding of merchants and thereby demand reimbursement of all appropriate (interchange) fees that are due them, year over year.


Price began his processing career working as a sales agent for his father.   His father's company acted as an independent agent soliciting merchant accounts for a company called Axia Payments.  Price breached his contract with Axia by luring away Axia clients in order to start his own processing business.  Axia sued and won.  The above Visa clause essentially stipulates that Price's Sponsor banks, Wells Fargo and BMO Harris, must conduct a background check on sales organizations like Gravity Payments in order to verify its responsibility and principles before entering into an alliance.

The above means that Wells Fargo and Harris Bank are responsible for ensuring that Price and Gravity Payments operate lawfully and that they too are liable for the transgressions of Dan Price and his team.

Perhaps the above regulation is the most consequential of them all.  Were Visa to hold Dan Price and Gravity Payments liable for the fraud that he peddles through his unsuspecting merchants, those same merchants can also be held liable by Visa and Card Issuers to the tune of millions of dollars, depending upon how long said merchants have been a Gravity client.  Remember, that this regulation stipulates "...receiving an inappropriate Interchange Reimbursement Fee," meaning that EACH fraudulently processed transaction is subject to the above fines, not to mention other penalties such as never again being able to process credit cards.

In yet another curious act, Price also took to Twitter to defend himself against the allegations made by Hundred Eighty Degrees.

Price has deployed eerily similar "victim" language for a long time, primarily in the context of how he somehow never has an idea of how he may exploit people or processes.  Here are just a handful of the many examples of this canned routine...

Speech at his alma mater, Seattle Pacific University, go to 11:07... https://www.youtube.com/watch?v=-slGSPkzbVQ

Interview with Inc. Magazine, 7th paragraph... http://www.inc.com/jon-fine/dan-price-speaks-at-vision-2020.html?cid=sf01001&sr_share=twitter

Keynote speech at the Inc. 500 conference, go to 10:30... https://www.youtube.com/watch?v=BKM9lpuUN58

Statement to The Guardian and other media in which he does not care to specify precisely what allegations he vehemently denies...

Here is a webcast of Dan Price speaking at the United Nations.  After he opened with a statement about how he had beer the night before and how he is getting so old (at 31) that he can feel the beer he had last night, he explained how "my company is famous because we had a minimum pay rate of $70,000 that we're working toward." 

At 5:00 in, Price says what he and his reps have likely said to every restaurant merchant.  "The other thing I thought about as a leader is, it's really hard to get people to tell you the truth."



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