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Dan Price accepts the Young Entrepreneur of the Year Award at the GeekWire Awards in 2013.
Dan Price accepts the Young Entrepreneur of the Year Award at the GeekWire Awards in 2013.

Post updated on Feb. 26, 2016.

A documentary producer who says he was in talks to make a series about Gravity Payments CEO Dan Price has instead published an exhaustive investigation into what he describes as fraudulent business practices by the entrepreneur who made international headlines last year for announcing a $70,000 minimum salary at the Seattle-based payment processing company.

The report alleges that Gravity Payments routinely misclassifies restaurants that use its service as bars instead — making them eligible for lower credit-card processing fees, and giving Gravity an unfair pricing advantage over rivals by violating the rules set by big banks and credit-card brands such as Visa and MasterCard.

INC Cover dan price
An Inc. magazine cover story on Dan Price and Gravity Payments last fall.

However, in a public statement just posted on its Facebook page, Gravity Payments addresses the issue and defends its business practices. Without referencing the report specifically, the post explains that the company “works with the merchant to make sure they are both in the right category code, and the one that will align with business objectives” in situations where the proper code might not be clear.

The post acknowledges that “each business needs to be properly identified with the correct merchant category code. Having the wrong merchant category code not only can subject a merchant to fines, but can result in higher interchange rates; a higher cost to the business accepting cards.”

The investigative report paints Gravity’s practices in a much different light. According to the report, miscoding is happening unbeknownst to Gravity’s customers, including high-profile Seattle restaurants such as Canlis and Ethan Stowell’s chain, exposing them and Gravity to potential fines. Based on the number of restaurants involved, in cities around the country, “the dollar volume of such a swindle easily lands in the tens of millions,” the report claims.

That’s one of the central allegations in the two-part series published late last week week by Doug Forbes, a former marketing consultant turned documentary producer who describes himself as an independent citizen journalist. He writes that he was in talks with Gravity Payments last year to produce a series following Price’s widely publicized salary announcement at the Seattle-based payment processing company, but he ultimately withdrew from the talks as he did more research.

Doug Forbes writes in the piece, “I realized that the vast majority of (Price’s) anecdotes and claims were more Hollywood than cogent. In fact, they were trustless.”

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Update, Feb. 18, 2016: Here is how Visa and MasterCard explain which Merchant Category Code (MCC) to use in these situations.

As part of a description of the restaurant category, the MasterCard rules say, “For merchants that sell alcoholic beverages on the premises, use MCC 5813,” referring to the code for bars.

However, the Visa rules say, “A merchant must be assigned the Merchant Category Code (MCC) that best describes its business. The MCC must describe the principal trade, profession, or line of business in which the merchant is engaged.”

Elsewhere, the MasterCard rules say, “The Acquirer must ensure that each Merchant and Submerchant is identified in authorization and clearing Transaction messages with the Card acceptor business code (MCC) that reflects the primary business of the Merchant or Submerchant.”

GeekWire has asked Gravity to provide an on-the-record statement directly explaining its interpretation of the rules, and the company has not provided one.

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GeekWire has contacted Visa and Mastercard for comment on the piece, and not yet received a response. The public Visa Supplier Locator used by the report to document the alleged misclassification of restaurants is now returning an error in response to searches. However, it was working when GeekWire used it on Saturday morning, showing numerical codes for restaurants consistent with those cited in the report.

Here is Gravity Payments’ Facebook post from this morning.

Think about the favorite neighborhood you’ve ever been in. Chances are what made it your favorite was the local…

Posted by Gravity Payments on Monday, February 1, 2016

Other court and police records cited in the report are proving to be accurate, based on our checks. They include a case from 2013 involving an alleged incident of assault by Price at Paddy Coyne’s Irish restaurant in 2013. Without admitting guilt or stipulating to the accuracy of the facts, Price in 2014 agreed to a two-year continuance of the case, according to Seattle Municipal Court records. The charges are scheduled to be dismissed upon the successful completion of the two-year period, with the conditions that Price have no criminal law violations or contact with the alleged victim.

Clarification, Feb. 26, 2016: This story has been updated to clarify the terms of the continuance.

GeekWire has also been contacting restaurants named in the report. Stowell, the well-known Seattle chef and restaurateur, said via email Saturday morning that he and his staff had just learned of the report the day before, and were in the process of looking into the claims.

Meanwhile, a lawsuit against Dan Price by his brother and Gravity Payments partner, Lucas Price, is proceeding in King County Superior Court, with a trial scheduled for May on Lucas Price’s allegations that his brother “improperly used his majority control of the company to pay himself excessive compensation.”

In a declaration filed in the case last week, Dan Price said the lawsuit has damaged Gravity Payments’ business and also resulted in “significant personal costs” to him.

Declaration of Daniel Price

“For example, we had negotiated terms with a major new customer — a well-known Seattle restaurant owner,” Price says in the declaration. “That company has since put off any deal until after this litigation is resolved. Homestreet Bank, which provides Gravity’s credit facilities changed position in lending negotiations and deferred more favorable terms, including eliminating my personal guaranty pending resolution of the suit.”

In addition, to fund costs related to the suit, Price says he has “borrowed against my retirement plan” and also “attempted to mortgage my home and rental property, but so far these loans have been denied based on the ongoing lawsuit.”

Price’s statement about the mortgages addresses an inconsistency in his story that was previously reported by GeekWire. In a cover story last fall, Inc. magazine said Price told them that he had “sold all his stocks, emptied his retirement accounts, and mortgaged his two properties — including a $1.2 million home with a view of Puget Sound — and poured the $3 million he raised into Gravity.”

Despite that characterization of the mortgages as completed, with the resulting funds already put into the company, no mortgages have been recorded on the properties, as GeekWire reported in December.

The Gravity Payments CEO put himself in the public eye last year by inviting The New York Times and NBC News to be on hand as he announced plans for a $70,000 minimum salary at the company and said he would simultaneously reduce his own salary — previously $1.1 million — to the same amount, to help fund the pay raises.

As subsequently reported by Bloomberg Businessweek, the announcement came about a month after Price was served with the lawsuit from his brother challenging his salary.

According to court documents, potential witnesses to be called at trial by Lucas Price include their father, Ron Price, and Dan Price’s former wife, Kristie Colón, whose allegations against her former husband during a TEDx talk in Kentucky are at the center of a separate series of events in this ongoing story.

Update, Feb. 26, 2016: Gravity Payments provided the following statement from chef John Howie.

It was brought to my attention recently there are some people who question the motivations of Gravity Payments CEO, Dan Price, on his controversial move to implement a $70k minimum wage at his company to provide his team a true living wage. Many business people don’t understand the reasoning behind the move, but it seems that Dan had thought it out and felt that it made great sense for his business in the long term, which to me, seemed like his decision to make.

I wanted to comment on my business relationship with Gravity Payments and Dan Price as I believe it is always good to have different opinions and perspectives to consider.

My restaurants’ relationship with Gravity Payments has been a very positive one. We have always received great service. Everyone I have ever talked with at Gravity cares about my business and how they can help make us better. They are very competitive, offering some of the best prices in the industry. I think Gravity’s goal is to take a small piece of a very big pie, rather than a big piece of a smaller pie. I have always felt like they do a great job for us and are always working in our businesses best interest.

I’m skeptical of most payment processing companies and their attempts at getting my business. Credit card processing companies are not known to operate with integrity. Over the years, I had been duped into looking at changing my credit card processors many times, only to find in the long run we were not being served the way we were told we would be, or the savings we were promised would receive never materialize. This is why I appreciate Gravity Payments. Gravity has never misrepresented what they could do for us and has always been forthright, especially when it involved changes in the laws or changes in VISA or MasterCard credit card processing that might affect my business. There were never any unpleasant surprises working with Gravity.

Gravity Payments has always worked with me to make my credit card processing safe and secure. They have always kept me abreast of any potential changes that could have a negative effect on my business.

As a restaurateur, I’m the subject of unfair public criticism daily. Anyone with a desire to criticize can get on Yelp, Trip Advisor, or any other online rating sites and say whatever they want about my business. They don’t even need to have even been a consumer or guest in my business to do this. But to be fair I find that some of my best opportunities to improve come from those sites as well. We are not above criticism I believe it actually makes us stronger, and helps us to perform better as long as it is warranted.

I’m choosing to trust my experiences with this local company who always has my best interests at heart. I’m sticking with Gravity.

About Chef John Howie

Legendary chef, John Howie, is owner of the award-winning John Howie Restaurant Group, which includes Seastar Restaurant and Raw Bar (Bellevue, 2002); SPORT Restaurant & Bar (Seattle, 2005); John Howie Steak (Bellevue, 2009); In.gredients (Microsoft Redmond campus, 2014), Beardslee Public House (Bothell, 2015); and Wildwood Spirits Co.(Bothell, August 2015). Along with being the chef/owner of the John Howie Restaurant Group, John Howie is also author of the cookbook Passion & Palate: Recipes for a Generous Table.

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