LANSING (AP) The Michigan attorney general said yesterday she has reached a settlement agreement with a company she charged with illegally selling Internet “malls” through an online pyramid scheme.
Attorney General Jennifer Granholm said she expects the settlements with KM.NET and its president, Stewart Giardina, to lead to refunds for thousands of people.
Granholm alleged that KM.NET and affiliated companies PowerCard and ECB4U.COM violated Michigan law in their sales, and said KM.NET officials indicated that up to 23,000 Internet malls were sold to Michigan residents.
Granholm said her office received numerous complaints from Michigan consumers who made initial investments of $399.95 in an Internet mall but had not received any return on their investment.
She said PowerCard records showed that more than 17,000 Internet shopping malls were purchased in 2000, and Michigan residents made most of those purchases.
The settlement announced yesterday resolve a lawsuit Granholm had filed. She also had intervened in a private class-action lawsuit brought against the company in Alabama, which reached an agreement Oct. 1.
Stewart Giardina, president of KM.NET, did not immediately return a phone call seeking comment. In a visit to Michigan last year, Giardina told a group gathered in Mount Pleasant that the company was cooperating with the state.
Granholm said settlement of the Michigan and Alabama suits should pave the way for the release of about $6 million related to the sale of online malls which is being held by a federal court in Maryland.
The malls are websites that are linked to sites for major retailers, such as J.C. Penney and Toys R Us. Mall owners earn a commission each time someone buys something at a retailer that they reached through the mall. Mall owners also earn $100 cash payments whenever they recruit additional owners.
Granholm said PowerCard violated Michigan”s Pyramid Promotion Act, which prohibits businesses from offering compensation in return for bringing other people into the business.
Granholm also said the company”s deceptive marketing practices violate the Michigan Consumer Protection Act.