On May 5, 2008, Oregon Federal District Court Judge Anna J. Brown issued a $26,480,041 judgment against Merchant Processing Inc., its owner Aaron Lee Rian, two other firms Rian controls, Vequity Financial Group Inc. and Direct Processing Inc., and Karely McCarthy (also known as Karly Speelman).
Included in that settlement is a permanent restraining order against defendants Rian and McCarthy, his fianc‚e; it prohibits them from ever working again in the bankcard business.
Banning individuals from working in an industry is relatively unusual. Federal Trade Commission attorney Dave Horn said the restraining order was requested because after the court froze MPI's assets in April 2007, "the ringleaders set up business in their basement doing exactly the same thing.
"If people foul up once, we don't generally try to restrain them from an industry, but when they do it again so blatantly we see that as a long-term problem."
The FTC originally filed legal proceedings against MPI in April 2007, alleging the company engaged in fraudulent and deceptive trade practices. A few days later, the court froze the assets of MPI, its owner and affiliated companies, and appointed Michael Grassmueck as receiver for MPI.
"We're quite pleased with the settlement," Horn said. "We hope that the industry will pay attention to it and that it will have a deterrent effect on others who might be operating in deceptive ways."
MPI Chief Executive Officer Jim Keller, who was hired by Grassmueck, said he is not surprised by the settlement and is glad the lawsuit is resolved.
Two weeks after the May 2008 ruling, Keller unveiled MPI's new name: Phoenix Merchant Processing Inc.
"I believe we have actually reinvented the company," Keller said. "Phoenix Merchant Processing derived its name from the mythical bird that rose from its own ashes. That analogy aptly describes the company's metamorphosis from questionable origins to its current status as one of the fastest growing ISOs in the industry."
Under the supervision of Grassmueck and the management of Keller, MPI (now Phoenix) restructured to emphasize transparency, customer service, and tech support; rewrote merchant contracts and lease agreements to ensure prominent and accurate disclosure of all fees and charges associated with merchant accounts; and tried to resolve as many merchant complaints on a case-by-case basis as possible.
Eventually Phoenix will be sold and the proceeds, along with the assets of the company that existed in April 2007, will go into a restitution pool for unresolved merchant claims.
"We don't know yet how much the sale of the assets will bring," Horn said. "The receiver will work on selling it all in good time; there is no specific timetable."
"During the past year, we let people out of their contracts that had issues with MPI," Keller said. "In February and March of 2008, we proactively approached all of our merchants and offered them the chance to exit their contracts without penalty. Eight percent left at that time.
"That said to me that we were doing our job; that our merchants believe they can trust us to be straightforward in our communications and responsive to their needs. We believe we are now a positive example for the industry."
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