Auditors dig into frozen StormPay accounts

Here is an interesting article from my news partner, News Navigator:

FBI asks BBB for records from probe into online payment processor
Auditors were busy at StormPay.com Friday as investigators try to get to the bottom of a dispute between the Clarksville online pay processor and a client who operates an "autosurf" Web site.

"We are excited about the audit," said Steve Girsky, StormPay owner and CEO. "We have no problem with them coming in to do the audit." Additionally, Better Business Bureau of Middle Tennessee president and CEO Kathleen Calligan said Friday the FBI has requested it receive all records the agency gathers from the BBB's investigation of complaints about StormPay and associated businesses.

Calligan said the BBB plans to issue a statement early next week after more investigation.
On Wednesday, officials with the Consumer Affairs division of the state Department of Commerce and Insurance said an investigation of StormPay was being conducted.

"We are doing everything that we can to process the complaints to the consumers to let them know that it is with the Consumer Protection Enforcement staff, and that we will let them know when the investigation is complete," Mary Clement, director of Consumer Affairs, said in a Friday e-mail.

Girsky and StormPay President John McConnell said, during an interview at their Golf Club Lane office, they were instructed not to disclose which regulatory agency conducted Friday's audit. The two say the examination will show their company has committed no wrongdoing and will "shed a positive light on StormPay."

On Feb. 1, StormPay officials froze accounts of some 30,000 to 35,000 12DailyPro.com members after receiving several complaints from members that money they earned from 12DailyPro was not being sent to them.

12DailyPro, based in Charlotte, N.C., operates a Web site that offers a 12 percent daily return on membership fees for viewing a dozen advertisements a day on Web sites. The pay is based on how much is invested in subsequent membership "upgrades."

StormPay is the intermediary that sends and receives electronic payments from 12DailyPro, as well as a number of other Internet businesses and users. McConnell said 12DailyPro member accounts comprise about 2 to 3 percent of StormPay's total customer base.

McConnell said their records indicate the last payments from 12DailyPro operator Charis Johnson to members was Jan. 8. When complaints of nonpayment came to StormPay later in January, company officials began to suspect something was wrong after Johnson was unable to answer questions about her business.

"She said it was proprietary information," McConnell said.
Steven Carr, an attorney with Nelson Mullins Riley and Scarborough law firm in North Carolina, said Friday he and another lawyer had advised Johnson to "decline all requests for interviews because the investigation was going on."

Carr, who said he was retained to negotiate with StormPay to release money it froze in 12DailyPro accounts, confirmed that he had been contacted by the federal Securities and Exchange Commission regarding 12DailyPro. He declined to elaborate further.

Carr, on behalf of 12DailyPro, released a statement Thursday evening stating StormPay officials were refusing to communicate or negotiate with 12DailyPro lawyers and they were "evaluating our legal options."

McConnell said he had talked with Carr Wednesday. Carr confirmed, saying it was a brief conversation about a fax number and "nothing substantive was discussed."

"I would like to communicate with the folks at StormPay and resolve this on an amicable basis, but I haven't heard back from them," Carr said. McConnell said StormPay froze the accounts and is holding the money until investigations are completed to help ensure 12DailyPro members receive as much of their investment as possible.

Ponzi or autosurf
Calligan characterized 12DailyPro as a Ponzi or Pyramid scheme. Charles Ponzi in the early 20th century devised a scheme that promises huge returns to investors but pays them with money from subsequent investors, rather than revenue generated by the business.

While some legitimate autosurf sites generate money from companies that pay for Internet advertising, Calligan said 12DailyPro's only revenue is from members who "upgrade" their membership and bring in more members.

"What are you selling? It's not a product or a service ... without it, you've got a pyramid going on," she said of 12DailyPro. Calligan said she and her entire staff of eight are now focused on investigating the more than 19,000 complaints against StormPay. "We are committed to answering each one," she said.

With the BBB investigation focusing on StormPay, Calligan said they "want to make sure that's all they're doing."
Mark Hicks