Web site developer, Webvalley, has cancelled its initial public offering (IPO) for the "forseeable future", following an investigation by the US Federal Trade Commission (FTC).
The FTC is suing the Minnesota based start-up for allegedly charging customers more than $9 million since 1997 for services they did not order.
The lawsuit, which was filed in the US District Court in Minnesota, charges Webvalley and its affiliates with "cramming" the unauthorised charges onto consumers' phone bills.
While a US District Judge has just lifted a restricting order to freeze the company's assets and place it in receivership, he has also barred it from destroying or altering business records.
Webvalley, which provides Web site design and hosting services to small businesses, is scheduled to appear for a hearing with regard to its continuing operations on 6 August.
The company, however, denies any wrongdoing, and Satya Garg, its president and chief executive, said: "Webvalley contests these charges with vigor and believes it will be exonerated of the charges made by the FTC as the process moves forward."
But the FTC's allegations have damaged the Minnesota based firm's plans to raise $34.5 million in an initial public offering (IPO) of its stock and as a result, it has scrapped them for the "foreseeable future."
Webvalley initially filed to go public in April, and according to a Securities and Exchange Commission (SEC) filing, generated revenues of $6.5 million in 1998, up from $2.4 million in 1997.
The filing also mentioned that the company offered a no obligation, free 30 day trial period for its services, but did not disclose the pricing structure or its billing practices.
But after reviewing more than 900 complaints, the FTC claimed it could not find the majority of Web sites that Webvalley had created. It spoke to 70 of Webvalley's customers in Minnesota, but attested that 52 of them were unaware the company had set up Web sites for them. Webvalley claims to have designed and currently hosts Web pages for more than 50,000 customers.
The firm is the third in Minnesota lately to be charged with Internet related fraud. The two other companies, Network 1000 and Strategic Advertising, which are owned by brothers Mark and Scott Boardman, are accused of violating state protection laws.
Webvalley was set up in 1996 and has a subsidiary in India, which handles much of its Web page development activity.
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