May 4, 2006 3:00 PM PDT

Feds shutter spyware ring

The Federal Trade Commission has wrapped up its first major spyware lawsuit with a $4 million judgment against spam king-turned-spyware master Sanford Wallace.

A judge in the U.S. District Court for the District of New Hampshire has ordered Wallace and his company, Smartbot.net, to give up $4,089,500 in ill-gotten gains, the agency said Thursday.

"We got what we believe is a judgment for the full amount of disgorgement--the amount of money we believe he took in through the unfair distribution of spyware," Rick Quarefima, the assistant director in the FTC's division of advertising practices, said in an interview. The actual judgment was passed in late March, he said.

Wallace and Smartbot.net were charged with deceptively dropping spyware onto the PCs of unwitting people, changing their settings and barraging them with pop-up ads. The software also caused computers to malfunction, slow down or crash, causing consumers to lose stored data, the FTC said.

In addition, the FTC said it has reached a deal with OptinTrade and its principal, Jared Lansky. OptinTrade placed advertisements for Wallace's software and has agreed to surrender $227,000 in ill-gotten gains, the agency said.

While Wallace initially put up a defense in the case, he ultimately abandoned it, and the judgment was passed without his being present. Still, the FTC believes it will be able to locate him and collect the money, which will go to the Treasury, Quarefima said.

The FTC brought the case against Wallace in October 2004. It was the first step for the agency in a new strategy to take on spyware, which is software that may track unsuspecting Web surfers and bombard them with advertisements or even steal log-in information and passwords. The agency won a temporary injunction against Wallace and his companies shortly after it filed suit.

Since then, the FTC has taken legal action against about six other alleged purveyors of spyware. The agency on Thursday said it won a temporary injunction in a lawsuit against Odysseus Marketing, which it filed last September.

Odysseus and its head, Walter Rines, were accused of bad practices similar to those in Wallace's case and are now barred from installing software on people's computers without their consent, among other restrictions, the FTC said. The case is still in court.

Despite the legal gains, consumers should be aware that spyware remains a major problem, Quarefima said. "People still need to take the steps to protect themselves against spyware," he said. "These were two players in the spyware space and there are others out there as well. We are not going to be able to be everywhere at the same time."

Still, strong enforcement should deter spyware pushers, Ari Schwartz, the deputy director of the Center for Democracy & Technology, said in a statement. "Aggressive enforcement of this sort is absolutely vital if we're to continue our progress in the battle against spyware," Schwartz said. The CDT manages the Anti-Spyware Coalition.

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