ATLANTA (CN) - The owner of CostCaptain.com, an Internet vendor, defrauded a married couple of $450,000 by selling them the company without revealing that its business model was fraudulent: charging customers automatic fees for nonexistent services, the buyers claim in court.
Michael Hollingworth and Tang Hollingworth sued CostCaptain.com and its former owner Mehmet Oguz, in Fulton County Superior Court.
The Hollingworths claim that Oguz advertised CostCaptain as a viable business with a 38 percent profit margin. The company supposedly sells goods online at a discount.
The Hollingworths say they agreed to pay $750,000, relying on books and records provided by Oguz.
But after they gave Oguz $450,000 in cash and signed a promissory note for the balance, the Hollingworths say, they discovered that Oguz had withheld records and had lied about the company's profits.
"On Sept. 9, 2013 after plaintiffs took over defendant CostCaptain.com, Inc. plaintiffs discovered the true reason for the profitability of the company: that while the average profit margin for the sale of goods was only 4 percent, the company was running a fraudulent scheme on its consumers by charging unwanted services," the complaint states.
The Hollingworths claim CostCaptain.com charged $29 for a "free shipping" default option customers triggered when they checked out during online purchases. The charge showed up on their credit cards as a "premier membership" fee the customers had not authorized, which claimed to give them free shipping for the year and coupons for other purchases.
"Because there was no way for the customer to opt out of the charge for the $29.00 and because there was no explanation for the 'premier free shipping' on the website when customers were checking out, the $29.00 charge to customers resulted in thousands of complaints, threats, and demands for refunds because customers did not know they were being charged the amount and did not receive anything in return for the charge," the complaint states. "Furthermore, no coupons were ever provided to customers."
CostCaptain.com attracted customers with its below-market prices, but after charging them the $29 fee, it ducked their complaints and demands for refunds, according to the complaint.
The Hollingworths say they discovered the scheme and the thousands of customer complaints after they closed on the sale.
They say some distributors had dropped CostCaptain.com because of the below-market prices it advertised.
Oguz also misrepresented the amount he owed to distributors by $64,000 and the amount of customer refunds the company had made in the first half of 2013 by $792,000, according to the complaint.
The plaintiffs claim Oguz moved to California and failed to train them or assist them with the transition.
After they discovered Oguz's misrepresentations, and received notice of an investigation from the Governor's Office of Consumer Protection, the Hollingworths say, they sent Oguz a letter of rescission and returned the stock and assets of the business.
But Oguz denied any liability and blamed the problems of the business on them, the Hollingworths say.
They seek rescission of the sale, refund of the purchase price, and compensatory and punitive damages for fraud.
They are represented by Ronald Stevens, who did not reply to a request for comment.
Contact information for Oguz was not available.
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