• Accused Spyware Purveyor Ordered By Judge To Pay $4 Million
  • June 2, 2006
  • Law Firm: Reed Smith LLP - Pittsburgh Office
  • Once named one of the world’s leading spammers, Sanford Wallace has now been ordered by a federal judge to pay $4,089,500 for allegedly downloading spyware onto consumers’ computers.

    The Federal Trade Commission sued Wallace and his company, Smartbot.Net, alleging they exploited a security vulnerability in Microsoft’s Internet Explorer’s Web browser to download spyware programs onto consumers’ computers without their knowledge or consent.

    The spyware allegedly caused CD-ROM trays to open and issued messages that stated:  “FINAL WARNING!!....If your cd-rom drive’s open…You DESPERATELY NEED to rid your system of spyware pop-ups IMMEDIATELY! Spyware programmers can control your computer hardware if you fail to protect your computer right at this moment! Download Spy Wiper Now!”

    The defendants sold Spy Wiper and Spy Deleter, the FTC alleged.

    In addition to the default judgment obtained against them, Wallace and his company are barred from downloading spyware or any other software onto consumers’ computers without their consent; from redirecting consumers’ computers to sites or servers other than those consumers have selected to visit; and from other practices.

    In a related action, Optin Trade and Jared Lansky have been fined $227,000 and barred from the same practices. Lansky was an ad broker who disseminated ads containing Wallace’s spyware products, the FTC alleged.

    In the mid- to late-’90s, Wallace was infamous for another Internet ill—spam. At his peak, he and his company, Cyber Promotions, were accused of being responsible for as much as one-third of all spam on the Internet, according to media reports. He reportedly renounced spam in 1998.

    Other Action

    The FTC continues to bring actions against accused spyware purveyors. The agency recently obtained a preliminary injunction against Odysseus Marketing and its principal, Walter Rines.

    The agency has charged the defendants with luring consumers to their Web site by advertising fake software they claimed would allow consumers to engage in anonymous peer-to-peer file sharing. Instead, spyware and other software bundled with it hijacked search engines and reformatted search engine results, placing Rines’ clients first, the FTC alleged.

    The FTC also has alleged that Rines has used spyware to capture consumers’ personal information, including names, addresses, e-mail addresses, telephone numbers, Internet browsing, and shopping histories and information concerning online transactions. Rines collected the information with the intent to sell access to the data, the FTC claims.

    The agency is seeking to permanently bar Rines from his alleged illegal activities and is asking for monetary sanctions.

    Why This Matters:  While Congress considers legislation to address spyware, the FTC has long maintained that it already is illegal, under the FTC Act, to download software without consumers’ knowledge and consent. The agency is taking action against some of the perceived worst examples to send the message that it won’t tolerate this practice.  It is important to note that the FTC also pursued the ad broker who disseminated the ads, imposing liability not simply on the prime culprit, but also on a party which aided the improper acts.