January 29-February 4, 2004

cover story

Gone Internet.Net

Room For Improvement: GoInternet's telemarketing boiler rooms will remain empty until managers can figure out their next move. Photo By: Michael T. Regan

A federal judge disconnects a notorious Old City Web firm.

by Daryl Gale

Radio personality Terry Lee Barrett, who lives and works out of his Old City studio, is in Harry’s Smoke Shop on Third Street, just north of Market. Upon hearing the news of a local company’s demise, a smiling Barrett stops in to buy a celebratory cigar.

"Good riddance!" he exclaims. "They were a blight on the community."

Reminded of the company CEO’s public comments that his detractors in the neighborhood were just racists, Barrett, a black man originally from the Caribbean, scoffs as he lights his $6 Acid smoke.

"Nobody cares what color you are if you act like a civilized adult," he says, puffing out a hazy cloud. "So you can’t fall back on racism just because you want to act like a fool."

Shop owner Phil Kurnitsky chimes in as he rings up the sale of Barrett’s cigar.

"It’s unfortunate for all those employees, but if the company is crooked, what can you do?" asks Kurnitsky. "Maybe they can start over with a legitimate company. It’s too bad, but the managers should have done whatever the government asked instead of putting all their employees on the line like they did."

It's hard to imagine residents gleefully celebrating the close of a business in their neighborhood, especially a wildly profitable one. But two weeks ago, when an Old City Internet company laid off all but 60 of its 1,700 or so full-time employees at lunchtime, that's exactly what happened.

In just seven years, the company was exceeding sales of $50 million, and the figures were growing. Those 1,700 employees were paying Philadelphia wage taxes, and pumping their salaries back into the local economy. You'd expect news that such a company had gone belly-up to spark anger in the community and outrage from concerned politicians, but in the case of GoInternet.net, the reaction in Philadelphia and around the nation is quite the opposite, and for two reasons.

First, the shutdown was prompted by a federal court that ruled in favor of the Federal Trade Commission (FTC), whose investigators uncovered tens of thousands of complaints against the company, and charged that GoInternet, whose telemarketers sold websites by phone to small- and medium-sized businesses, was in "flagrant and defiant" violation of a 2001 order to cease and desist its "fraudulent and deceptive business practices." Further, they said, the company had ripped off consumers all over America to the tune of some $105 million.

Second, the community has -- or at least had -- its own ax to grind.

Last year, the businesses surrounding GoInternet’s three Old City locations got together with the Old City Civic Association, and with the residents’ full support, slapped the company and CEO Neal Saferstein with a civil lawsuit for loss of business and creating a neighborhood nuisance.

The nature of that nuisance and loss of business, according to those business owners, were GoInternet’s employees, who they claimed were loud, profane and obnoxious litterbugs who were scaring off customers and shoplifting them out of house and home. It didn’t help one bit that the vast majority of GoInternet’s employees were young and African American, which added the element of racial tension to the mix. That lawsuit was settled out of court when both sides agreed to a compromise. Saferstein would hire more security and build an indoor smoking area for employees, and admonish his people for their behavior outside the building. He did just that, and while it seemed to help a little, the actions didn’t do much to change the neighbors’ attitudes about the company.

Asa Khalif, head of the group Racial Unity and another of Old City’s black residents, sides with Barrett. Racial Unity, a nonprofit whose mission is to end racial discrimination through education, made headlines a few years ago with its investigation of racial profiling by Philly’s cabdrivers, who refuse to pick up black fares, and its very public protest of Sixers guard Allen Iverson’s rap lyrics. The taxi story led to an investigation by the Public Utility Commission; Iverson’s rap album was never released.

"GoInternet was gum stuck to the bottom of Old City’s shoe," Khalif declares. "Everyone is happy about it around here. We’re actually changing the theme of our Super Bowl party to a combination Super Bowl/Goodbye GoInternet party."

Terry Scogna, who owns Strands Hair Salon on North Third Street, is just as happy to see GoInternet gone, but tempers her joy with sympathy for the people who lost their jobs.

"I’m happy they’re out of here," Scogna says. "I feel bad for the employees who just wanted to feed their families, but we’re just trying to keep the community nice."

Yes, neighbors knew about the FTC’s case against the company, and were rooting for the government all the way. But in the end, neither the neighbors nor the business owners had much to do with GoInternet’s fall, which they acknowledge.

Still, they "knew it was a scam from the beginning," says Khalif. "They hired employees with marginal social and business skills, and that was by design. They set them up as telemarketers, paid them minimum wage and then declared themselves some kind of saviors in the minority community because they hired so many young African Americans. It was nothing more than a modern-day slave plantation."

If Khalif is correct in his slave-plantation analogy, the Emancipation Proclamation came in the form of a preliminary injunction from Judge Clifford Scott Green of the U.S. District Court at Sixth and Market. On the last day of 2003, Judge Green issued the injunction, which placed tight restrictions on the way GoInternet could conduct business. They were confining enough to effectively shut the place down.

Green’s reason for the drastic action, according to the injunction, was that "the [FTC] has established by clear and convincing evidence that defendants GoInternet/ Mercury Marketing and Neal Saferstein have violated, and continue to violate, the 2001 Order entered by this court." Green further wrote that his immediate action was necessary to prevent irreparable damage to the government’s ability to obtain monetary relief for GoInternet’s thousands of unsatisfied costumers.

Contacted for comment regarding the injunction, Judge Green offers only one terse sentence. "The order speaks for itself," says the judge, declining further comment.

The heart of the judge’s order is that GoInternet -- which also does business as Mercury Marketing, Mercury Internet Services, Mercury Communications, MIS, Mercury Technologies and Venus Voice Mail -- would have to obtain written confirmation from every customer on every sale before any billing occurs, and then express written authorization from that customer as to the method of payment.

For a company making 2,000 sales per day from 100,000 daily phone calls, complying with the judge’s order would slow the sales process to a crawl, then eventually grind it to a halt, say company managers.

In the employee lunchroom on the fifth floor of the Daniel Building, Joe Rocha, the chief financial officer of GoInternet, is talking to Neeraja Raghunatran, vice president of operations. A few days earlier, the large room and break area would have been teeming with activity and loud conversation, but today, 20 N. Third St. is eerily silent.

"The entire telemarketing and sales staff are all gone," Rocha says sadly. "The employees were notified on Wednesday [Jan. 14] that given the recent court order, the company will suspend our sales and telemarketing operations. On any given payroll, that was 1,700 to 2,000 checks. What we have left is a skeleton crew of about 60, mostly executives, customer service and IT [information technology], to serve those customers we have."

Rocha says laid-off workers who had been with the company for more than six months were offered severance packages based on tenure that could equal one to six months’ pay. He also says the company has no intention of denying any unemployment compensation claims from layoff victims. While Rocha rattles off the number of layoffs, Raghunatran’s eyes fill with tears. For her, those numbers represent people she’s grown fond of, not just colleagues and subordinates, but dear friends.

"We lost a lot of good people," she says. "It’s very emotional. We were like family. Some of those employees had been here four or five years. It’s a sad time for the company."

Raghunatran, a former journalist and scientist in her native India, says GoInternet was one of the best jobs she’s ever had, and is hoping beyond hope that the company can somehow make a comeback. Rocha clings to the same lifeline.

"There’s a lot of expertise out there, and sound advice for companies in our situation," Rocha says. "We’re going to be talking to people who specialize in strategic marketing. If we’re able to somehow work within the confines of the judge’s restrictions, we’ll start hiring again."

Not if the government has anything to say about it.

Moaning time: GoInternet executives Neeraja Raghunatran (left) and Joe Rocha say they feel for the laid-off workers. Photo By: Michael T. Regan

The big problem, according to court documents, is that the overwhelming majority of businesses billed by GoInternet never agreed to purchase the service and were unaware they were provided a website by GoInternet. Some didn’t know their names even appeared on GoInternet’s customer list.

When FTC investigators randomly called 417 business owners from the list of current customers provided by GoInternet managers, here’s what they found:

Seventy-two percent of those customers were unaware that a monthly charge of $29.95 had been appearing on their phone bills, payable to Mercury or MIS, and less than 1 percent indicated that they had agreed to allow GoInternet to develop a Web page for their business, and not one had ever seen the website.

Telemarketers simply made with the high-pressure sales pitch, and unless the person on the other end explicitly and in no uncertain terms screamed, "No!" into the telephone, they were signed up to the tune of $29.95 per month, which would simply appear on their monthly phone bill as "MIS." In addition, the FTC claims, refunds from the company involved listening to, then vehemently rejecting, a second sales pitch.

Even then, refunds were slow in coming, if they came at all.

In addition to the FTC, GoInternet is also under fire from the attorneys general of North Carolina, Arkansas, Kentucky and Illinois, all of which have pending litigation with the company. In fact, almost two months before Judge Green’s injunction, Pulaski County (Ark.) Circuit Judge Chris Piazza sided with State Attorney General Mike Beebe in issuing an injunction of his own on Nov. 5, 2003.

Judge Piazza’s order is simple and to the point. While awaiting the non-jury trial before him -- it is scheduled to begin April 5 -- GoInternet/Mercury Marketing is prohibited from doing any business in the state, period. They are not to call Arkansas consumers, collect any charges from Arkansas or even demand payment of past bills from Arkansas.

Matt DeCample, Beebe’s press secretary, says that while the Attorney General is pleased to hear that GoInternet has shut down its operation, they’re not through dealing with them yet.

"A significant part of our case was to get them to stop, so we’re happy about that, but equally significant is our effort to get relief for Arkansas residents who were defrauded," DeCample says. "They deserve to get their money back, and we’re not stopping until we’ve exhausted every possible human effort to get it back for them."

Similar feelings are expressed by the North Carolina Attorney General’s office. Public Information Officer John Bason says that a similar preliminary injunction is in place in his state, based on more than 100 local consumer complaints. In Kentucky, Attorney General Albert Chandler got a judge to fine Saferstein $5,000 and force the company to sign a pledge of future compliance with state fraud regulations.

Efforts to reach Saferstein for comment on this story were unsuccessful.

Over at the FTC’s East Central Region office in Cleveland, an attorney working on the case didn’t want to be identified or comment for the record because the final outcome is still pending, but says that the court documents outlining the FTC’s case are a matter of public record. What the attorney doesn’t say is how voluminous those documents are.

A trip to the records room at the William Green Federal Courthouse at Sixth and Market results in an experience that borders on comical. It takes two beefy clerk’s aides to carry the six large file cases that hold Federal Trade Commission vs. Mercury Marketing/GoInternet and Neal Saferstein. A full 65 pages are filled with just the names of consumers who contend that the company ripped them off, and thousands upon thousands of individual complaints are carefully cataloged.

Most are similar to the sworn declaration of Laura Epstein, who testified,

"I am the bookkeeper at ArtsPower, Inc., a nonprofit organization in Montclair, N.J. In March 2003, I was reviewing our telephone bill and noticed a $29.95 charge from a company named Mercury Internet. I had never heard of Mercury, and did not know why they were charging us. I then reviewed our past telephone bills, and discovered that Mercury had billed ArtsPower every month since June 2002. ...I searched the Internet for information on Mercury and discovered it had been sued by the Federal Trade Commission and was under Court Order prohibiting it from billing without authorization. Therefore, I filed a complaint with the FTC. .... ArtsPower already has an extensive website (www.artspower.org) accessible by major Internet search engines. We have no use for another website and would never authorize another company to create and post an advertisement for our business. ... To date, we have not received a credit."

E. Gerald Tugwell, vice president of Henderson and Tugwell Consulting Foresters in Asheboro, N.C., testified to a strikingly similar experience.

"In October 2002, I noticed a charge of $61.70 for "Internet services’ on our Sprint bill," Tugwell swore. "The bill shows the charge originated from a company called Mercury Internet Services. I did not authorize or agree to any charges for services or the like from Mercury," he said. "Neither [my partner] nor I know anything about the Web page or e-mail service that Mercury thinks they were providing for us, which I think demonstrates clearly that we did not authorize any of Mercury’s services. We already have a website and have no need for another. I can think of no one who would willingly and knowingly be billed for services by Mercury. I am furious about my experiences with this company."

Taking this tidal wave of horror stories into account, the FTC pulled no punches in its written response to Judge Green.

"The defendants not only mislead customers, they blatantly lie," writes the FTC. "They lie about everything from who they are to the purpose of their call, all in an effort to bill consumers for unwanted, unauthorized services. They profit from those lies, and cannot be trusted."

It gets worse just two paragraphs down.

"The defendants cannot be trusted and have lost their opportunity to take self-help measures to remedy their deception. Defendants are like the proverbial fox guarding the henhouse. Each time they are caught stealing, they issue the expected apologies and promise to change their ways. And each time they are left again to their own devices, and given access to the henhouse, they grab all they can before getting caught again. Again, after the entry of the 2001 Order, at least six regulatory agencies sued defendants for the same conduct. As the Court noted and Mr. Rocha agreed, if it were three strikes you're out, the defendants would be out."

And the kicker line that made the judge take notice? "Consumers have been harmed to the tune of at least $105 million by defendants' deceptive conduct, according to FTC estimates."

While Rocha may have admitted to the three-strikes rule on the witness stand, sitting here in GoInternet’s abandoned lunchroom, he asks on behalf of the company for one more at-bat.

"We had taken interim steps to comply with the earlier order," Rocha says. "We were attempting to clean up the sales process, even though that action resulted in lower sales. We became more stringent in the verification process, and made modifications to the script in October. We started sending verifications out to customers by certified mail, just to ensure they got it. We didn’t do all that just to appease the court order, either.

"People may not believe this, but when we heard that the number of complaints against the company was in the thousands, we were just as alarmed as the FTC. We still think we offer a valuable service to the small-business consumer. We offered a great jump-start for small businesses, whose owners may not be Web-savvy, to get on the information superhighway."

Unfortunately for Rocha, Saferstein and their employees, the FTC still disagrees.

"Defendants offer the fact that they create Web pages for businesses as evidence of their valuable service, ignoring the clear fact that whether the service is of value is irrelevant if the business did not agree to purchase the service in the first place," the FTC snippily retorts in its written response. "Moreover, the evidence clearly shows the Web pages are of no value. First, the Web pages are mistake-ridden and cursory. Most are made for companies that already have a Web presence and would have no need for or any interest in the defendants’ second-rate Web design. The defendants themselves admit that the Web pages are not searchable by major search engines. It is of no value to a business to have a Web page that cannot be accessed, and it is obviously of no value to have a service it is not even aware of."

A failure to communicate: Abandoned computerized phone dialers bear silent witness to GoInternet's downfall. Photo By: Michael T. Regan

Thomas Harty, the attorney representing Saferstein and GoInternet/ Mercury in the FTC case, says his client is not quite out of business yet; while they aren’t soliciting new sales, GoInternet is allowed to bill the customers in its database who haven’t lodged a complaint.

"The company has an existing customer base of approximately 100,000 and we can service and bill that customer base," Harty says. "There’s an attrition rate, certainly, and customers naturally go away for a variety of reasons. So yes, that base will eventually dwindle down. The only thing we can do now is what we’ve done: suspend and re-evaluate the way we solicit telephone sales, then try to go back at a later date and show Judge Green that we’ve come up with a plan to conduct business while complying fully with his order."

Harty is also careful to point out that the order is a preliminary injunction, not a permanent one. The hearing where the judge would make his ruling permanent -- or make adjustments to it -- hasn’t yet been scheduled. He says his client doesn’t plan to appeal the order, but will use the time to look for ways to comply with the order while staying in business.

GoInternet/Mercury Marketing wasn’t Neal Saferstein’s first business venture. The 30-year-old South Jersey native owned a company in the early 1990s called Interactive Business Systems (IBS). Saferstein’s partner at IBS was computer software specialist Henry Scott Courbis, a childhood friend. At the time, both were recent Temple University graduates looking for a business venture, and IBS seemed like a good plan.

Courbis, the programming genius, would write the business software, while Saferstein, the salesman, would woo clients and maintain the business relationships.

"I’ve known Neal since third grade," Courbis says. "We were friends, I guess you could say, but not good friends. I don’t think Neal has ever had a genuine friend."

As friends, Courbis and Saferstein couldn’t be more different. Courbis is well over 6 feet tall and reed-thin with a full head of uncombed brown hair; Saferstein is short, pudgy and balding. Courbis is quiet and reserved, almost shy, while the boisterous Saferstein craves the limelight and loves attention.

"Back in school, he got his ass kicked almost every day," Courbis says of Saferstein. "He craved attention, but he had very few social skills. As far as I know, he’s never had a girlfriend. I guess we became friends because we were both computer geeks."

According to Courbis, GoInternet was also not Saferstein’s first experience with questionable business practices.

"We started IBS in 1991, and it went OK for more than a year," says Courbis. "But by the time I got out in ’93, I was scared shitless. … I had irate clients calling to threaten me with lawsuits and bodily harm, but I didn’t handle that end of the business. I just wrote and installed the programs, and did the hardware and software maintenance. I’m not good at handling customers, especially angry customers, which is why Neal was supposed to handle that end."

Finally sick of angry customers and weak excuses from his partner, Courbis got out.

Informed of Saferstein’s contention that the government is mistaken in coming after him and the Old City neighbors are just racists who resent the fact that he hired thousands of young blacks, Courbis laughs heartily.

"The only reason Neal hires the urban poor is for a steady supply of cheap labor," Courbis cackles. "Now he puts himself up as some kind of champion for poor African Americans? That’s hilarious!"

Since the IBS debacle, Courbis says he’s been working at a computer company in New Jersey, and has managed to put both IBS and Neal Saferstein out of his mind.

"The last time I spoke to Neal was in 1995," says Courbis, "and at that time he was involved in some kind of shady deal with MCI/WorldCom. I never found out what it was, but about two years later I heard he had started a company called GoInternet."

Even though the salespeople and telemarketers are gone, and pretty much all that’s left of the thriving company that used to be GoInternet.net are empty boiler rooms and blank computer screens, Rocha, the CFO, says he’s not ready to put the nail in GoInternet’s coffin just yet.

"We’re taking a step back, reviewing the court decision and trying to decide what to do next," says Rocha. "We haven’t decided to sell the buildings yet, because there’s still a chance that we can get back up and running at some point in the future. We’re working with consultants and marketing strategists to decide our next move."

In the meantime, Rocha admits he doesn’t know how long the company can afford to maintain even this bare-bones operation and skeleton crew without a dime in new revenue coming in.

"I’m studying that right now," he says. "I don’t know how long we can last in this state of limbo. But I can tell you this: not very long."