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PayPal faces lawsuit for freezing customer accounts and funds

  • 814 points
  • 8 days ago

  • @I_am_tiberius
  • Created a post

PayPal faces lawsuit for freezing customer accounts and funds


@rpaddock 8 days

Replying to @I_am_tiberius 🎙

They did this to my late wife's account. They demanded that I prove she was dead, as if I didn't already have enough grief. See the documentary Pain Warriors about that saga.

How do I sign up to be part of this suite?

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@datavirtue 8 days

Why doesn't this fall under the CFPB? The money is held in a bank account which ultimately belongs to the PayPal customer.

When I was in the prepaid card industry we held money for people in our bank account just like PayPal does. The bank held us to account for each of our customers. We accidentally prevented some people accessing thier finds for a few days due to a software glitch and had our asses handed to us. As we should have.

One lady was prevented from accessing her $200 for a few days and her lawyer extracted our maximum arbitration amount of $8000 from us.

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@anm89 8 days

Hard for me to understanding how this is only happening now. It feels like this one has been ripe for 5-10 years.

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I went to visit the US and transferred just 500 Dollars to a friend for our shared Airbnb. The account got suspended because of "unusual activities" I called them and told them it was myself transferring funds and it still took them two weeks to reinstate the account...

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@tootahe45 8 days

Governments need to ban 'shotgun KYC', which is where they let you put funds in the account before they freeze it and make you do KYC, rather than making you do KYC directly on sign-up. You're effectively forced to give away your info or lose the funds. Sites like Paypal don't want this to happen because registrations would drop off majorly if you had to KYC on sign up.

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@meandave 7 days

My account was permanently suspended this week, along with some friends I used to share a studio with (they paid me their portion of rent via PayPal), my girlfriend, and the record store a close friend of mine works at. It seemed like my account flipped some automated trigger and it took out my whole payment network. There’s of course no information from customer service. I hope this becomes a class action suit and we can join

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This has been happening to folks for ages. I'm looking forward to understanding why Paypal thinks it can steal from it's customers without facing repercussions. I wouldn't do anything serious with Paypal for this exact reason.

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@umrashrf 8 days

It sounds like these lawsuits are used to bring the confidence back into the company (PayPal) to keep their unicorn status so US government can benefit from this. I might be paranoid or just crazy to think like this.

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@eruci 8 days

Yes, I'll join too. They froze one of my accounts with a cryptic message of "You can no longer do business with paypal" and included another "In six months we'll contact you to let you know how you can withdraw your funds"

By reading on the experiences of people in this lawsuit, I doubt I'll see my money even in 6 months time.

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@nerbert 8 days

Surprised it hasn't happened before.

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@throwaway2474 8 days

In my (quite extensive) experience with the company, one should only ever use PayPal as an extremely temporary means to accept payment for clients who can’t pay any other way, and then immediately withdraw the funds to a real bank account.

The company absolutely cannot be trusted, and will do everything in their power to take your money and not give it back. I do not know a single person who uses PayPal regularly for a business who doesn’t absolutely hate the company, because they do this type of thing so regularly.

Recently, when you log into a business account, there is a giant alert that looks like an important warning, that actually says you’re “eligible for a business loan”. You have to dismiss it every single time with the little non-default no thankyou button. And then beg them to give you access to your own money, because apparently you can’t be trusted.

I for one would love to see a lawsuit like this land.

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@acomjean 8 days

“using PayPal to buy and sell clothing on eBay, to exchange money for a poker league she owns and for a non-profit that helps women with various needs. “

I can see one of those things causing an issue (poker league)

We use PayPal for membership fees for our nonprofit. This year they’re limiting us to 2000 a month transfer out which is annoying to us, but we’re small enough to get by.

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@anovikov 8 days

Good answer to people who ask what is the point of crypto...

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@meonly123 6 days

I would like to be added to the law suit. They froze my account at Christmas time how do I get involved

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@gossamer 8 days

Yay! It is about time.

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@basher 8 days

PayPal refuses to let heirs access, or even know if there is a balance on accounts after people die, regardless of death certificates. I wonder how much money is being held by this tactic?

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@salusinarduis 8 days

I don't have anything to add other than to say Paypal stole $1800 from me this way.

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@sporkland 7 days

I had a total shit thing happen with Paypal. Someone, I had no idea who, sent me $80 for a supposed transaction (which I think may have been legit they just did the wrong email address). Then they asked for a refund when they realized it was in error. Which PayPal wanted me to pay a fee for. I filed a dispute they auto refunded and charged me $20. So I refuse to use it now. They won't let me close the account either.

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@carlsborg 8 days

Bitcoin (and others) solve this.

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@johnboiles 8 days

Great to see this! Not to the same scale as seizure but using buymeacoffee.com for OSS donations PayPal would lock my account every month or two until I uploaded a bunch of documents (which were always the same docs each time). Each time it was a little uncertain if I'd be able to get my money out or not. Meanwhile PayPal would happily continue to receive money in my name that I didn't have access to.

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@mickotron 7 days

I was a customer for 16 years until they decided I couldn't use their services anymore. I had to fill out a bunch of forms and provide a lot of info to a financial services company who'd had a massive breach. I no longer use PayPal.

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@ddtaylor 8 days

PayPal closed an account of mine after 20 years without explaining anything because I logged in one day while still connected to my VPN.

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@joejohns 8 days

I resorted to using another payment gateway to prevent freezing accounts and funds; this is great news.

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@creshal 8 days

I've been battling dumb Paypal problems both on the end user and the merchant side so often that I'll never again use it if at all possible, especially in shops. It's just not worth the time and effort to try and trick them into doing their job.

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@mdavis6890 8 days

This is devastating to those users affected by this, but I believe that the blame doesn't lie solely with PayPal. Unfortunately there are many laws they must comply with that delegate enforcement to private companies like PayPal rather than where is belongs - the government.

From the article: PayPal allegedly sent his wife a letter that says she "violated PayPal's User Agreement and Acceptable Use Policy (AUP) by accepting payments for the sale of injectable fillers not approved by the FDA."

If PayPal DOESN'T freeze the account and hold the money, they can get in far larger trouble with the government. Why should PayPal be involved in this enforcement at all? If the FDA doesn't like what this seller is doing, let the FDA themselves go after the seller and leave PayPal out of it. But the law doesn't work that way.

I had $10k's in an account with BofA that was frozen and nearly killed the closing on a house I was buying at the time. Because they had a mailbox address on file for me, rather than my home address. It was horrible for me, but that's what the says that they had to do, and if they didn't the could end up in trouble with the feds facing huge penalties.

Let's try to empathize with all parties and think rationally about the incentives and constraints that they face.

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@smoldesu 7 days

Now when can I sue Coinbase for doing the same thing? I've got a couple hundred dollars tied up in their little trading business, and they won't let me withdraw until I verify my info; when I try to verify my info, I get an error.

What gives? Why am I allowed to put money in without verifying, but I can't take money out?

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The thing that's surprising to me isn't that big corporations will do their damndest to rob people blind, it's that within minutes/hours/days after reading this thread, there will be a horde of people who read this article and smugly decry crypto saying there's no use case or purpose for it.

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@birdyrooster 7 days

As bad as it can be, PayPal is so easy to use for purchases and sending money to anyone anywhere for free. Why anyone would use crypto is confusing to me. We already have the tools we need outside the crypto world and they are creating broken copies.

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@miohtama 8 days

The problem is that usually anti-money laundering laws give the operator and the compliance officer an infinite protection even on a suspected money laundering. As long as the compliance process is followed, no matter how stupid the process is, there is no legal basis to go after account freezer and the company is protected. Thus, the company has no incentive to be reasonable with account freezes.

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@Covzire 8 days

I hate paypal's shady business practices almost as much as I hate facebook.

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@sys_64738 8 days

Paypal threatened to cancel my account because I closed the linked bank account and canceled the linked credit card. OK, go ahead.

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@kingcharles 8 days

If you're a big enough customer they give you your own personal account manager and he'll make sure your account stays open and running whatever happens. I had millions coming through PayPal when I was running a private tracker and I could speed dial our PayPal man if I needed.

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@JRGC1 8 days

Good

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@vmception 8 days

Use P e r m i s s i o n l e s s systems

It's been 13 years guys. They use way less energy and cause way less carbon emissions than these behemoths.

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@kweks 8 days

We are Europe's largest site for RFID and pentesting hardware (lab401.com)

We are in the exactly the same situation. PayPal has conducted a personalised, manually executed war of attrition against our company and shareholders.

Eight months ago, PayPal froze our account, seizing 15kEU. They refused to give any justification for the action, despite discussions with C-level staff.

After the 180-day "withholding" period, we were informed that they would not release the funds, for undisclosed reasons.

We immediately engaged legal counsel. PayPal refused to interact with our counsel, and so a C&D was issued. Within one week of the C&D, PayPal did the following:

- Froze the account of our sister company (in Hong Kong), seizing 35k EU

- Froze the personal accounts of all shareholders of the EU and HK corps (~1,5k EU)

- Froze the business accounts of all shareholders by name search (different corporate entities, different businesses) - 5kEU

- Froze the business accounts that the shareholders held (again, different corps, different businesses) - another 5kEU

Our policy is to empty accounts on the 28th of each month. PayPal froze and seized funds in all accounts on the 27th of the month. Based on the time-stamps of the emails, and the order in which the accounts we closed, it's obvious that it was a targeted, manual process (2 - 3 minutes between closing each personal account, 15 minutes to find the next company account, 3 - 5 to close the personal accounts, and then 10 - 15 minutes for the next company accounts).

We engaged secondary legal counsel in Luxembourg (PayPal's EU headquarters). Again, PayPal refused to disclose any reason, justification or proof, replying with typo-ridden copy-pasted document from a low-level legal peon, concluding that no funds would be returned, the businesses and personal accounts were deemed 'illegal', and as such, PayPal would confiscate all funds.

All KYC was performed. All accounts had been "audited" by PayPal (when you reach the 5k, 50k, 100k+ processing tiers).

Needless to say, operationally - we have shipped 50kEU of hardware to customers, and face losses of the hardware, and costs of replacing stock. I agree with the standpoint: this is purely racketeering - an online equivalent of Civil Forfeiture.

For extra context, as the points have been raised in other comments:

- In a perfect world, no merchant would use PayPal. In our experiments, disabling PayPal cuts revenue by ~30% in our industries.

- Pentesting products could include illegal products: keyloggers, etc. We sell no such products for obvious legal and compliance reasons. All the products we sell are sold by countless other resellers that use PayPal. We have processed Visa/MC with Stripe for over 6 years with no problems (legal, chargeback, etc)

- We empty accounts regularly, to minimize fallout. However, you have to keep a healthy minimum in accounts when dealing with large volume, or accounts get limited automatically (presumably to avoid merchants pulling cash to avoid chargebacks / refunds)

- We have already 'invested' over 20k in legal fees. I justify this cost in (perhaps falsely) believing that we could establish some case law that could benefit other merchants.

It's unfortunate that we cannot join the class action in the US, or we'd be into it. With that said, if anyone merchant in the EU has similar issues, it could be interesting to investigate if a similar action can be mounted in the EU. Feel free to reach out: simon at sn dot cm (not a typo).

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@pdimitar 8 days

So why not use (Transfer)Wise, I wonder?

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@c7DJTLrn 8 days

PayPal and Ebay are like toxic waste. I've had both accounts frozen. Most recently my Ebay account for a reason they will not explain and will not allow me to appeal.

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@b8 8 days

I'm happy that this is happening. Small buisness owners, Twitch streamers etc. can get their PayPal account locked pretty easily for "suspicious" activity (i.e chargebacks or a few thousand dollars). Then PayPal locks their account for 180 days with little to no recourse. The big Twitch streamers register an LLC which PayPals gives more leniency to AFAIU.

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@antux 8 days

When they freeze customer accounts they're essentially taking away people's livelihood and right to live. In a way, it's like killing someone, but slowly and non-violently. This is definitely unjust and deserves a class action lawsuit.

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@theplumber 8 days

Recently I've been suspended from an "online bank". It's a traumatic experience, especially if you need the money held in that account.

Fortunately the amount I had there was not that big but the abusive procedure is trumatic. I can't imagine how someone would feel like to have all his rent money blocked in an online bank.

Basically you are told that unless you provide whatever documentation they want you loose the access to your own funds. Of course providing them documentation is no guarantee they will lift the restrictions. The support is via email only. The boarding and verification process it's really just a bite and switch scheme. I don't know how someone would feel safe to keep money in such a bank after they put your account/transactions on hold for days.

I start to like the "crypto currency" concept of owning your money more and more.

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@jedberg 8 days

When I worked at PayPal, some of the execs would say "we don't make money by giving it back to people". These were the execs that worked directly with Theil and Musk and I'm sure they're long gone, but it was definitely Theil and Musk who pushed for these types of policies right from the start (well Musk agreed when he showed up, he wasn't a founder of PayPal despite what he wants you to believe).

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@vamega 8 days

Hearing the stories in this thread makes me wonder if anyone has ever tried to get a decree that PayPal owes them the money, and if PayPal refuses to pay show up to confiscate their property.

I know things like this have happened to banks[1]. That would probably get them to start paying attention.

[1]: https://abcnews.go.com/Business/bank-america-florida-foreclo...

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@AniseAbyss 8 days

The concept of directly paying someone from your bank account seems completely impossible in America. There always has to be some middleman parasite- who conveniently charges a nice transaction fee for the privilege.

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@caseysoftware 8 days

I've also seen scenarios where they undo bank account transfers without notice to clawback funds they're suspicious of.

I finally created a separate bank account that I connected Paypal to and never leave more than $30 with them and zero in the account. Trusting them is a quick route to losing everything they can touch.

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@dm03514 8 days

I'm so happy to see this. I am working on publishing a book on leanpub, and leanpub disburses payments using paypal. Yesterday, I logged into my paypal account and I remembered that this happened to me and my funds and account were frozen since 2010 (something I must have put out of my mind :p).

I was searching for this issue and found this lawsuit and cannot wait to be part of it.

Dealing with Paypal during the time was borderline abusive and I felt helpless every step of the way. In 2010 when they froze my account they mailed me a physical letter with an activation code which took weeks, and when I called to confirm my account I was told that the code was incorrect...

I had very very little money in my account < $100 and I can't imagine how frustrating it would be for someone who needed paypal for their income.

I'm happy to be in a position where I can choose to never use paypal again and I hope they are punished for the way they treat their customers.

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@mickotron 7 days

HN hates cryptocurrency.

And yet, all the comments on this thread are about banks/paypal freezing funds or transactions.

Decentralised digital money does have value and a use case. It's interesting that most here don't see that this kind of thing would not happen with crypto.

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@stjohnswarts 8 days

This is why I use antiquated banking. At least I have someone to contact if something goes wrong.

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@alfalfasprout 8 days

I refuse to use paypal for any nontrivial amounts of money for this exact reason. I once had $10k frozen for no reason at all. I really needed that money back then. Was an absolute nightmare and took weeks to unfreeze.

The only thing I now trust for "quick" payments of larger amounts of money is bank wire.

Cryptocurrencies don't exactly solve this problem since you need to convert back to the fiat currency and you then have exchange rate volatility + withdrawal delays (and crypto exchanges also are notorious for freezing withdrawals).

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@gk1256 8 days

PayPal has the fraud problem. Every next payment platform who aims to become the next PayPal also suffer from it.

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@ckastner 8 days

> Lena Evans, one of the plaintiffs who'd been a PayPal user for 22 years, said the website seized $26,984 from her account six months after it got frozen without ever telling her why.

Wait, what? They're actually taking the money? I thought the article was just being careless with the terms "frozen" and "seized".

On what power are they doing so? It's understandable when the relevant authorities (be it a tax authority, or a financial supervisory authority, or a court, or whatever) seize money, but they are not an authority.

Furthermore, if the money in question actually were illicit, then by what fantasy argument would they be allowed to keep it themselves rather than having to hand it over to the goverment? The entire point is that the money is dirty and nobody may keep it.

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@dobs_bob 8 days

Imagine an Elon Musk company being total douchebags!

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@aasasd 8 days

I've heard about their ‘freeze and seize’ business model in mid-late 2000s, so it's been going on for almost fifteen years already, maybe more.

Meanwhile Paypal's early top execs are icons of US business and techbros. This Musk is probably a really solid guy, what's not to like!

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@olingern 7 days

I’m in the same position as many other users with frozen accounts. I’ve called and appealed multiple times. I don’t understand how PayPal is a company when they’re clearly out to harm their users.

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@jaarse 7 days

Currently using PayPal, Stripe (for Visa,MC,ApplePay, etc), Shopify payments and traditional merchant services from brick and motor banks. PayPal is by far the least merchant friendly.

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@6510 7 days

In old news: Judge Approves $4M Deal Over Closed PayPal Accounts

https://www.courthousenews.com/judge-approves-4m-deal-closed...

http://www.courthousenews.com/wp-content/uploads/2017/03/Pay...

Some chunk of the doc:

> Judge Fogel ruled that: (1) the PayPal User Agreement affords PayPal “sole discretion” to place holds on its users’ accounts, irrespective of whether the user has engaged in restricted activities;

> and (2) PayPal has no contractual obligation to provide users with an explanation as to why their accounts may have been frozen.

> [...]

> Finally, he dismissed the unjust enrichment claim on the ground that the parties’ relationship was governed by an express contract.

> etc etc bla bla bla

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@skarz 7 days

This has happened to me in the past. They thought something was suspicious about my account and froze it entirely.

Remember: Paypal is not a bank. That's not your money, that's theirs and they're letting you use it.

Don't keep money in paypal. transfer or spend it immediately.

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@Jiro 8 days

Link to actual lawsuit: https://aupdamages.com/wp-content/uploads/2022/01/PayPal_Fil...

(I had to Google this and find it in a Reddit thread, so it's not directly from the court's website. If anyone can find that it'd help)

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@Ekaros 8 days

That took way way too long... How is it possible that this happens only now and not shortly after PayPal launched?

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@pizza234 8 days

Very good news, especially the potential class action.

Something that I find very interesting is how the individual lawsuits will end. I remember (but can't find) a David vs Goliath case from some time ago, where a user brought Google to the small claims court. He won the case in that venue, but subsequently lost when Google followed up an brought a huge amount of documentation and won. The guy's conclusion was that Google knows _a lot_ of stuff and can leverage it; I think that the events could play similarly, here.

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@durnygbur 8 days

Tightening of mobile phone policies some years ago locked me out of few paypal accounts, also they seem to completely disregard and abandon security questions created long time ago.

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@lvl100 8 days

Are they still using pandemic as an excuse for not having live customer service? Paypal is simply the worst. I’ve once had to reach one of their execs to get a problem resolved only they couldn’t get it resolved.

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Fwiw, I closed my family’s PayPal accounts just now in response to this. Enough is enough.

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@antihero 8 days

Thing that amazes me is that people leave huge amounts of money in their PayPal instead of withdrawing it regularly. Why not just withdraw it, and then PayPal has nothing to seize!

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@jliptzin 8 days

Exorbitant punitive damages please, this is long overdue.

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