North Dakota authorities are suing the defunct telemarketer WebSmart for allegedly defrauding consumers of more than $64,000 in a bogus credit-card sales scam.
In a separate investigation of the Minot-based firm, Attorney General Wayne Stenehjem decided Thursday not to file criminal charges over disputed payroll withholdings and bounced paychecks.
One problem: The deadline for filing a complaint for the handful of bounced paychecks had long passed before prosecutors got the case -- the result, employees have complained, of foot-dragging Minot police.
The investigations came after WebSmart abruptly closed its doors last April, throwing 628 employees out of work and without paychecks, including 207 in Minot and 161 in Grand Forks. The others worked in the firm's call center in Saskatoon, Sask.
More than 200 North Dakotans have filed claims of more than $200,000 for several weeks' back wages, which became the basis for a civil lawsuit initiated by the state last fall.
ADVERTISEMENT
The fraud lawsuit announced Thursday claims WebSmart engaged in deceptive selling practices, and Stenehjem said more than 250 North Dakota consumers might have been victims.
State consumer protection investigators concluded that WebSmart and its employees deceived consumers by misleading them to believe they were buying credit cards, the lawsuit said.
In fact, the state contends, the cards were "stored value cards," prepaid debit cards backed by fees consumers prepaid. Advance payments typically were $221.95, according to former WebSmart employees.
Despite the advance payments, most customers never received the cards or "membership benefits packages" -- a failure to deliver that WebSmart's owners knew or should have known, Stenehjem said.
The questionable sales involved cards offered by Global Financial, Inc., based in Atlanta. Global Financial is the subject of numerous consumer fraud complaints in Georgia.
Georgia consumer protection officials seized Global Financial's funds last April -- action that disrupted the flow of between $200,000 and $400,000 in expected payments to WebSmart, forcing the company to close days later, without paying employees for several weeks of work.
Allegations of fraud involving the cards offered by Global Financial surfaced on the Internet in August 2002 -- the month before WebSmart contracted to call for the Georgia company.
Also, WebSmart became aware of customers who complained that they hadn't received their cards as early as January 2003, soon after it began selling them, according to investigative records released Thursday.
ADVERTISEMENT
WebSmart began receiving complaints from customers on its toll-free sales verification line and in an internal customer survey to see how many customers had received their packages.
"They did some cursory checking of what Global Financial was up to," Stenehjem said of WebSmart's efforts to look out for customers' interests. "Their actions, I don't think, went nearly far enough."
In addition to the company, the fraud lawsuit names WebSmart's owners and officers as defendants. They are Robert J. Lamont and John C. Skowronek, Minot law partners; Marius "Buzz" Stitzer, Minot, who also served as WebSmart's operations manager; and part-owner Patrick K. Conner.
Calls seeking comment Thursday from Lamont, Skowronek and Stitzer weren't returned. In the past, each has denied any wrongdoing. Efforts to reach Conner were not successful.
Stenehjem's decision not to file criminal charges was based on an opinion he had requested from Peter Welte, the Grand Forks County state's attorney.
After examining all of the information available, Welte concluded there was no proof of criminal intent on the part of WebSmart's owners.
"It is my opinion that most juries would see this as a civil matter, and one that could be best dealt with through the appropriate State agencies and, possibly, the civil arena." Welte wrote.
Richard Fruhling, a former WebSmart worker who filed a criminal complaint over disputed health insurance premium withholdings, said employees will be watching the back-wage suit closely.
ADVERTISEMENT
"It's not so bad as long as they go after the back wages," he said of the decision not to prosecute. "They need to do something."
Readers can reach Forum reporter Patrick Springer at (701) 241-5522
