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AdultShop Sues Over Processing Woes

AdultShop Sues Over Processing Woes
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Oct 9, 2004 9:00 AM PDT    Text size: 
In another example of fallout over the ongoing uncertainty over credit card processing issues, AdultShop.com has initiated a multi-million dollar lawsuit against two Australian businessmen.

AdultShop's court action was brought against Dean Shannon, Steve Jones, and their company, E-Millions Pty Ltd., the Queensland businessmen who sold AdultShop their online erotica division, Today's Success, three years ago. Shannon and Jones were paid a total of around $12 million in cash and shares for their holdings in Today's Success, but the transaction would not escape controversy or the scrutiny of Australia's corporate watchdog, the Securities & Investments Commission.

It was credit-card processing problems (and the resulting plunge in share price after AdultShop issued a profit warning) that was behind AdultShop's loss, and subsequent litigation. While AdultShop was able to write off the balance of Today's Success last year, their suit in the West Australian Supreme Court against Shannon and Jones is designed to recoup a portion of their losses.

Alleging that the named parties breached the Australian Trades Practices Act, along with their contractual and equitable obligations as well as their fiduciary duties, AdultShop's 26-page writ specifies that certain claims about the benefits of merchant account processing that were made to principals of AdultShop were false.

Shannon and Jones had previously lost their merchant account agreement with the National Australia Bank due to excessive charge backs, but it was the fact that they sold their shares immediately after the six-month escrow period ended, indicating that perhaps they knew their advice was not as forthcoming as it could have been.

Court documents show that Shannon could have realized up to $7.7 million by selling his shares, while Jones could have seen around $6.3 million from the sale of his shares, on top of the $1 million in cash he had already received.

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