part FivE

dan price is being investigated by the state of washington and why that Matters

Hundred Eighty Degrees has been repeatedly asked why, for five months and counting, we have investigated Dan Price, the famed $70k CEO of Gravity Payments.  After all, Price helms a PRIVATE company.  He can do as he wishes.

The truth is, regardless of what Price may think, he cannot do as he wishes.

The credit card industry is a $10 trillion dollar colossus comprised of 4 million businesses and 230 million users in the United States alone.  The average American carries nearly 4 credit cards.  It is therefore safe to say that cash is no longer king.  In fact, it's a fossil.  

But while Americans rack up hotel points or airline miles, the banks, credit card brands and payment processors rack up fees to the stars.  And they do so with utter impunity.  When was the last time you dedicated a few hours to reading your credit card terms?  Or if you're a business owner, when was the last time you dedicated a weekend to weeding through your monthly statement rife with interchange fees and assessment fees and just-because-we-can fees?  The system is a cartel.  Visa and MasterCard set the fees, the banks nod "yes," the card processors set up the gilded gateway to consumerism, and yet nobody cares to ask consumers or merchants how they feel about foggy-at-best fees that tripled over the last decade.

Let's be honest.  Using shiny little pieces of plastic to pay for vacations to Paris or pianos or patio furniture or plastic surgery or just to keep the lights on -- we cannot expect this to be free.  We are playing with monopoly money, and such a privilege must come at a cost.

But the danger in all of this is the fact that we allow those who extend such a privilege to punish us with policies and practices that we rarely if ever have the time or the wherewithal to comprehend, let alone challenge.  If we've learned anything from the post mortem of the Great Recession and the subprime mortgage con, it's that we haven't learned much if anything at all.  Millennials have been mousetrapped by Instagram and Twitter, Gen Xers don't know how they can send their kids to college while they still pay off their own student loans, and Wall Street owns more of Main Street than ever before.  And just to add insult to injury, instead of paying for groceries or gas with cold hard cash, we make our beloved banks richer by the millisecond by waving our plastic around like it's a magic wand capable of sprinkling sparkledust.

Dan Price is not to blame for this hamster wheel.  But he is to blame for making the world believe he's different.  He is to blame for making the world believe his payment policy was an exclamation point on a fair wage debate.  And he is to blame for making the world believe he was turning a "predatory" processing industry on its head in order to even the playing field for people simply trying to pursue dreams of owning small businesses and thereby contributing to communities.

Since incorporating his business as a 19-year-old freshman at Seattle Pacific University, Price always declared how he wanted to "destroy his industry."  In 2014, Price received an "Executive Excellence" award from Seattle Business Magazine.  During his acceptance speech, he lambasted competitors for deploying predatory practices upon small businesses in order to "make screw-you money like the rest of the financial services industry."  Price followed up that zinger with this haunting pledge.  "We say we'll stick up for the little guy until you kill us or we kill you."

Price constantly claims that he is THE most truthful and transparent credit card processor.  His very own website home page states that Gravity Payments offers "Credit Card Processing Trusted Most By Community Businesses," a bold claim indeed, considering thousands of other processors might think differently.

Hundred Eighty Degrees has since proved that Price himself is a world-class wolf who actually built his business by making that very same screw-you money like the rest of the financial services industry.  Not only has he done so on the backs of thousands of unsuspecting small businesses for which he claims he will fight to the bitter end, but his scheme also affects everyday consumers.  More on that in a moment.

Price is nothing less than the ultimate too-small-to-fail stepchild of a carnivorous too-big-to-fail economic monster hellbent on devouring the working class.

He has leveraged thousands of restaurants nationwide to execute a remarkable fraud scheme that, in effect, built Gravity Payments to what it is today, the 35th largest credit card processor.  For as many as 10 years, Price has instructed his sales reps to vigorously pursue restaurant prospects.  These reps present said restaurants with a costcomparison tool to illustrate what Gravity Payments pricing looks like against that of their existing payment processor.  The savings are striking, to say the very least -- thousands of dollars per year per restaurant.  However, in order to undermine competition in such a convincing manner, Price uses credit card transaction rates that are supposed to be assigned to bars instead of restaurants, because bar rates are considerably less.  Simply put, this is fraud.

Such an effortless but admittedly brilliant scam enables Price to repeatedly win restaurants away from his competitors, after which he and his underwriting team officially and permanently "board" them into the system as bars.  For as long as they are Gravity Payments clients, each and every one of those unsuspecting restaurants processes thousands of fraudulent transactions per year.

Hundred Eighty Degrees alleges that restaurants account for as many as 7,500-10,000 of Price's 14,000-strong merchant portfolio.  Even if a restaurant processes a very conservative 50 Visa and MasterCard transactions per day five days per week fifty weeks per year, this equates 12,500 fraudulent transactions times 7,500-10,000 restaurants or over 0ne hundred million fraudulent transactions per year.

Price has been able to execute this swindle without recourse, because he structures clients with "flat-rate" pricing.  A flat rate combines all credit card processing fees into one monthly rate, thereby obfuscating how such fees are allocated.  In other words, unlike 99 percent of his payment processor competitors, Price's monthly client statements do not reveal how fees are applied to each one of their transactions within a given month.  Price claims to offer such a unique structure to simplify matters for his clients when, in fact, he does so to bury any traces of how he commits fraud.






His fraudulent fee structure also affords him an extra buffer wherein he can increase his own processing fees.  More fees mean more profit and more profit means more money for Dan Price, even at the expense of his company's profitability or the well-being of his own employees. In 2012, Price paid himself seven times the average income of industry peers, including much larger public companies, and 148 percent of the company's pre-tax net income, which meant Gravity Payments lost money.  But just because Gravity Payments took a big hit, doesn't mean Dan Price did.  That year, Price bought himself a yacht and a multi-million dollar house in an exclusive Seattle neighborhood with breathtaking views of The Puget Sound.  He also hired a round-the-clock personal assistant to tend to his every whim.  In 2012, Price was just 28-years-old.

Right up to his wage announcement Price continued to pay himself 4 times the industry average.  Meanwhile, he has always strapped his employees with supremely low wages.  Front line sales reps who (knowingly or unknowingly) helped Price exact his fraud scheme only made $30-$35k while inside sales reps, customer service reps and other support staff made considerably less.  Decent wages were reserved exclusively for top tier outside sales folks or finance gatekeepers who toed Price's dubious line for many years.

During his wage announcement to the masses, Price also claimed to cut his salary immediately from $1.1 million to $70k in order to help offset the wage hike.  A recent court document proves that Price earned over $476,000 by September.

Price also claims to have remortgaged his properties to offset the effects of his wage hike.  Both Hundred Eighty Degrees and GeekWire have proved his claim to be false.  Price says he rented his primary residence to make ends meet after reducing his salary to $70k.  As mentioned, Price did not reduce his salary accordingly, and multiple sources with knowledge of his living situation confirm his rental claim to be false.

So, why should any of us care?

... Because, in a highly calculated fashion, Dan Price set out to bamboozle the masses into believing he was sincere about changing the stakes for economic equality.

... Because Price willfully jeopardizes pillars of our small business communities by subjecting them to potential fines (up to $10,000 per fraudulent transaction), injunctions, lawsuits, or at the very least, costly audits. 

... Because Price denigrates and destroys fair competition.  In fact, his bold-faced breach of antitrust regulations -- including price-fixing, hidden fees and other vulturine practices -- is the antithesis of fair play. 

... And because Price commands a broad team of young staffers to carry out such acts for and with him.  If Price is severely punished, and he certainly should be based upon the policies, procedures and penalties set forth by the card brands themselves, not only will Gravity Payments staffers be out of jobs, but good luck trying to gain future employment with the Gravity Payments name on a résumé.  The tragic irony is not lost on us, as according to Price, the whole point of his wage announcement was that he and other business leaders had a "moral imperative" to do right by their workers.

Since Hundred Eighty Degrees released the findings of its investigation on January 29, Price has relentlessly canvassed his restaurant clients in an effort to convince them that everything is on the level and there is nothing to worry about.  He has also made a public statement that restaurants themselves are responsible for determining what type of business model they are and how they should be classified.  This is a lie.  Payment processors work directly with sponsor banks to properly identify business models, underwrite them accordingly and eliminate risk.

A brazen example of fraud is Pagliacci Pizza which has 23 locations throughout Washington state.  They are clearly a pizza franchise with a few pasta options and a limited selection of beer and wine.  All 23 locations are currently and fraudulently misclassified as bars.

The Hundred Eighty Degrees investigation has attempted to essentially notify these restaurants to remove themselves from harm's way.  However, restaurants that are aware of these clear, correct and collaborative findings but choose not to remove themselves from harm's way, even if their processor is not Gravity Payments, knowingly commit fraud and are therefore far more prone to receive industry sanctions, including potential lifetime exclusion from processing credit card transactions. 

In recent developments, sources have told Hundred Eighty Degrees that certain high-profile restaurants have severed ties with Price while numerous others are in the process of shopping for alternatives.  Included in the list of those who have left Price are Seattle's acclaimed Ethan Stowell Restaurant Group (13 restaurants throughout Washington) and Canlis, also widely hailed in culinary circles and one of Price's first clients from over 10 years ago.   

Hundred Eighty Degrees has updated its list of fraudulently coded restaurants.  The total is now 1,020.  As significant as this number is, we believe it to be but a fraction of the ultimate total and perhaps one tenth.  We also believe that the total value of Price's fraud over 10 years is anywhere from $150 million dollars to $250 million dollars.

Click here to download list

Hundred Eighty Degrees has ended its search for fraudulently coded restaurants, largely due to the fact that this is and should have been the job of industry gatekeepers.  How payment processors -- especially those who transact as much business as Gravity Payments and who report directly to behemoths such as Wells Fargo and First Data -- are not subject to a healthy regimen of audits simply boggles the mind.

If such gatekeepers refuse to believe that a total of 1,020 fraudulently coded restaurants, let alone 5 to 10 times that amount, is not enough to terminate a processor's ability to work in the processing space, then what does that say about the industry at large?

We have attempted to garner comment from Visa, MasterCard, Discover and American Express... from Wells Fargo, Bank of America, Citibank, Capital One, BMO Harris, JP Morgan Chase and other banks... from First Data Corporation and from the industry's primary advocacy group, the Electronic Transactions Association.  None have advised us if and when they will investigate Price.  None have advised us if they agree or disagree with our findings.  NONE HAVE ADVISED US WHY THEY HAVEN'T ADVISED US.

These entities have it all wrong.  Consumers and merchants don't answer to them.  THEY answer to US.  Why?  Because it's OUR money.  And without our money, they do not exist, they do not matter, and they do not continue to make up their own rules that make them rich beyond definition.  The longer consumers and merchants wait to hold such institutions accountable to them, the harder it will be to turn the tide.  So, here it is, Visa, MasterCard, banks and First Data... is Dan Price being investigated by you?  Is he going to be punished?  And if you think we will stop asking at some point, you are sorely mistaken.

Perhaps the most astonishing takeaway from this investigation of a single payment processor is that all processors, all banks and all corporate third parties reign over their credit card processing playground without but a trace of regulation.  That's right, a ten trillion dollar industry with 4 million businesses and 232 million consumers babysits itself.  It is the wild, wild west, wrapped in Wall Street wrapped in the Vatican.  A self-policed money machine with Energizer Bunny vigor to get rich fast and without a trace.

The Federal Trade Commission occasionally slaps wrists of minor league scammers for a few million dollars in fines here and there.  The Consumer Federal Protection Bureau Director Richard Cordray is concerned about a lack of transparency and deleterious effects on consumers so he finally issued some guidelines -- which are not enforceable regulations.  The IRS only cares about making sure they know who makes what and how fast they can slurp up tax dollars.  And when the U.S. government enacted the Durbin Amendment in 2011 which was supposed to reduce out-of-control debit card fees, they actually left credit card untouched, and banks made up for their losses by increasing credit card fees and reducing rewards perks and incentives.  Finally, the processing industry has instituted "EMV" technologies to reduce rampant identity theft and payment fraud.  But instead of the credit card issuers taking responsibility as they have for years, they are now shifting the financial burden to their merchants who accept credit cards.  That means more fees, more fines and less profit for everyone except the banks and the credit card brands.

Dan Price is not the only world-class credit card processing fraudster.  (For instance, take a look at Mercury Payments, and there are plenty of other bad apples in the bunch.)  But not all payment processors are Dan Price.  Not even close.  And while an astonishing number of industry operators, and merchants who Hundred Eighty Degrees has dialoged with for months, are sickened by transgressions and runaway policies, there are just as many companies doing right by their clients.  The problem with runaway policies and self-governing, however, is that the actions of the bad apples have far greater effect than those of the good ones.  Merchants and consumers pay the price via complex, ever-increasing fees due to a complete and utter lack of oversight.

All of these reasons listed above are enough to continue to cover this story and in some way raise awareness so that merchants and consumers have a better understanding of their positions on the chess board. 

This is also why we alerted the Washington State Attorney General and Secretary of State about Gravity Payments.  Last week, the State of Washington Department of Financial Institutions Enforcement Division notified us that Dan Price is under investigation based upon information related to our own investigation. 

Incidentally, this same department recently issued this statement, and this is a big change for the processing industry:

"... that merchant payment processing constitutes money transmission under the Washington Uniform Money Services Act, WASH. REV. CODE §§ 19.230.005- 19.230.905, (Act). The Interpretation therefore concludes that merchant payment processors are subject to licensing and other requirements under the Act unless a waiver is granted by the Department.   The Act requires persons engaged in “money transmission” in the State of Washington to obtain a license and subjects such persons to supervision, oversight and regulation by the Department. Although the term “money transmission” as defined by the Act does not expressly refer to “payment processing,” “money transmission” is broadly defined to mean “receiving money or its equivalent value to transmit, deliver, or instruct to be delivered the money or its equivalent value to another location… by any means…” WASH. REV. CODE §§ 19.230.010(18). The Interpretation expressly states that payment processing on behalf of merchants is money transmission under the Act. Accordingly, the Department expresses the view that persons engaged in merchant payment processing (including as bill payment processors on behalf of billers) are subject to licensing, regulation, supervision and oversight as a money transmitter by the Department under the Act.

This same week, Hundred Eighty Degrees was contacted by high-profile class action attorneys with intimate knowledge of the processing industry who believe Dan Price can and should be taken to task for what he has done.  Sources tell us that a class is being assembled and further action will soon be manifested against Price. 

Unrelated to the class action lawsuit, credit card processors, merchants, consumers and other parties can join those who have already lodged complaints against Price and Gravity Payments -- or other dubious operators -- for unfair business practices that have or could precipitate harm. Call 360-902-8700 or go to: http://www.dfi.wa.gov/consumers/file-complaint/consumer-services.

Less than two weeks after his home city of Seattle adopted the nation's first $15 mandatory minimum wage -- thanks in large part to social justice movements Fight for $15 (since 2012) and Occupy Wall Street (since 2011) -- Price claimed to have a revelation that landed him in a global spotlight advising business leaders, entrepreneurs and politicians about their "moral imperative" to administer fair pay, transparency and business principles that "change humanity."  Everyone from Bernie Sanders to Dave Grohl jumped aboard the Dan Price publicity train and rode his tale around the globe at the speed of sound.  This was to be a remarkable story of disruption -- a consequential act made by an insurgent millennial who just might change the course of crooked corporate economics. 

In stunning and tragic fashion, however, this instead became a story of a young man willing to go to disturbing lengths in order to both procure and preserve fame and fortune.  Ironically, Price does not even side with a $15 minimum.  During an interview with Fox News, he explains that self-regulation and self-governing are better solutions.  Asked by CNN, Entrepreneur Magazine and other interviewers if he feels his exorbitant pay was justified or if it should have been attenuated long before, Price refuses to afford a direct answer.

No other example of Price's utter disregard for personal accountability is more extreme than that of his alleged beating of ex-wife,
Kristie Colón, and alleged emotional abuse inflicted upon Gravity staffers.  As has been widely reported since Bloomberg Businessweek released its report in December of 2015, Ms. Colón gave a TEDx Talk at The University of Kentucky during which she shared a journal entry that describes repeated punching, body-slamming and waterboarding suffered at the hands of her ex-husband.  Though she did not name names, Ms. Colón has only been married once -- to Dan Price. Ms. Colón continues to refrain from specifically and publicly naming Dan Price as her assailant, but she nonetheless more avidly writes about domestic violence matters on her social platforms, and has since more directly addressed her experience with Price.

Hundred Eighty Degrees considered whether or not such behavior has suffused Price's professional life in any way.  Former Gravity Payments employees were contacted and asked whether or not they knew of incidents of abuse within their workplace.  Thus far, eight such interviewees -- who cannot offer their names but have been generous with their time and candor concerning their employment experiences -- confirmed that they personally suffered and witnessed constant and acute emotional abuse from Price.  Though these employees worked at different time periods or in different capacities, each account was consistent with the others.  Price, who rarely appears at the office, calls meetings every few weeks during which he singles out employees in a concerted effort to personally and professionally humiliate them in front of peers, to the point of tears, anxiety attacks and departure.  Two such employees recounted incidents wherein Price had to be physically removed from businesses he was trying to sell or retain because of his confrontational and abusive behavior.  All of these interviewees stated that his public cum media persona is in stark contrast to his actual unusually dark and disturbing disposition. 

Extreme physical and emotional abuse is a public safety concern with serious consequences, for both victim and aggressor.  Well-known cases of CEO abuse include Home Depot and American Apparel but research suggests that one in five employees suffers some level of abuse.  Price is a rather unique example.  He hires largely young people with limited experience, because, as one former employee stated, "Even though Dan is young too, most everyone else is younger.  They fear him and don't want to disappoint him.  He controls them by demeaning them." 

Despite his personal or professional transgressions, Price still owns that multi-million dollar property, and an income property, and the yacht, and the attention of countless citizens around the globe who still consider him to be "Corporate Jesus."  He still travels the globe making $30,000-$50,000 speeches.  He still has a $500,000 book deal with Random House.  He still has a licensing deal with Deepak Chopra.  And he still continues to be assigned the role of ambassador for business ethics, exemplified by this recent event at SXSW and his speech before the United Nations General Assembly.  On their own, such accolades and rewards are not the issue at hand.  But to be granted such dividends based upon nothing more than being an unvetted crook with an obsessive desire for celebrity is an absurd reality at best.

Hundred Eighty Degrees has lashed out at media for anointing Dan Price without vetting him, for enabling him to ascend to such heights that are utterly undeserved.  While we stand by such criticism, it is unfair of us to draw ALL media under that umbrella.  Outlets such as Democracy Now! and The Atlantic and Pro Publica and countless others raise the bar on deep-dive journalism.  Citizen journalists around the globe uncover defining stories, such as the Flint Water Crisis or the NSA scandal, and do so unconcerned about their own personal gains and entirely concerned about keeping communities informed on critical issues.  Read Michael Nigro's insightful piece on citizen journalism here

Citizen journalists such as Hundred Eighty Degrees are constantly questioned about motives because why else would we stick with a story until that story resolves itself?  Our answer?  Because that is precisely what journalism is supposed to be, not a 24/7 news cycle of punditry and self-serving sound bytes that utterly fail to serve the public good. 

Where are The New York Times and NBC and ABC and CBS now after handing a hot mic and international stage to a relatively unknown payment processor from Seattle throughout 2015?  Of course, America's heated political climate must dominate news cycles, but why haven't any of these media giants who broke and/or repeatedly covered Price's story at least lightly engaged what might arguably be the most compelling news about Price to date?  One would think that a $150+ million dollar nationwide fraud scheme executed by someone once globally hailed as "Corporate Jesus" and "Real Life Robin Hood" certainly is newsworthy.  Do such outlets no longer have the patience or the attention span to follow through on such stories, or is there a fear of somehow feeling accountable for not diving deeper in the first place?

And where is Bloomberg Businessweek, the publication that ran one of the first pieces to challenge Price on his motives and raise allegations of abuse?  Yes, we chided them for showering praise upon themselves, but one would think, given the fact that they are a BUSINESS publication, they would pick up on a story about widespread BUSINESS fraud that affects tens of thousands of people nationwide.  After all, they cared enough about Price to write about him on four previous occasions and also interview him on Bloomberg TV. 

It would be hard if not impossible to believe that Bloomberg or any other aforementioned iconic media giant would care enough (or at all) about our opinions of them to a point at which they refuse to acknowledge, vet and further deliver their own stories related to our findings.  That is a long shot at the very least.  So why the silence after so much hullabaloo over Price?

And where do we go from here? 

Hundred Eighty Degrees will continue to follow the State of Washington's investigation of Dan Price.  We will continue to follow the class action lawsuit.  We plan to actually knock on the doors of Visa, MasterCard, banks and regulating agencies to uncover their intentions, not only where it concerns Dan Price but also the industry at large.  We will soon deliver a videotaped tell-all with an industry giant which promises to bare unprecedented insider information about the payment processing industry.  We will report on Price's lawsuit with his brother.  And we will continue to call, text and email Dan Price in order to get his side of the story via a televised interview.

Incidentally, an industry veteran named Alex Nouri is about to release a book titled "Credit Card Processing Exposé."  It is "an insider's tell-all on merchant processing, lending, risk management and more... what every business owner should know to avoid costly pitfalls."  For more information about Mr. Nouri's book, email him directly.

Finally, Hundred Eighty Degrees must reiterate its thanks to numerous sources who contributed mightily to this investigation.  That said, the lion's share of these sources have remained anonymous to date.  It is high-time that the credit card processing industry promotes a climate of absolute transparency and accountability so that those who are conducting fair and just business practices are unafraid to publicly hold accountable those who are negatively impacting merchants and consumers.  Time and time again, we hear stories from folks who are either intimidated by Price due to his global appeal or dubious personal nature or do not want to come forward with critical information about him or the industry for fear of burdening themselves or their organizations. 

This must change. 

States like California have anti-SLAPP laws to right the ship on such matters.  SLAPPs ("Strategic Lawsuits Against Public Participation") are often brought by corporations, government officials and others against individuals and community groups who oppose them on issues of public concern.  SLAPP filers frequently use lawsuits based on ordinary civil claims such as defamation, conspiracy, malicious prosecution, nuisance, interference with contract and/or economic advantage, as a means of transforming public debate into lawsuits and quashing dissent. States like California have anti-SLAPP laws that will help people emerge from the shadows and freely share such dissent or even blow the whistle on outright criminal behavior.  Go here for further information.



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