FTC Permanently Halts Unlawful Spyware Operations

Defendants involved with operations that secretly downloaded spyware that changed settings on consumers’ computers, have agreed to settle Federal Trade Commission charges that their practices violated federal law. The settlements bar secret software downloads in the future, bar the operators from exploiting security vulnerabilities to download software, and bar misrepresentations. In addition, the operators will give up a total of $50,000 in ill-gotten gains.

In October 2005, the FTC charged that Odysseus Marketing, Inc. and its principal, Walter Rines, lured consumers to their Web sites by advertising bogus free software, including a program called Kazanon that purportedly allowed consumers to engage in anonymous peer-to-peer file sharing. According to the FTC, the bogus software was bundled with spyware and other unwanted software. The agency alleged that the defendants also distributed their spyware by exploiting security vulnerabilities in the Internet Explorer Web browser. The FTC charged that the defendants’ spyware intercepted and replaced search results provided to users who queried popular Internet search engines, and barraged consumers with pop-up and other Internet ads. The FTC also charged that the defendants’ software captured consumers’ personal information such as their first and last names, addresses, e-mail addresses, telephone numbers, and Internet browsing and shopping histories, and transmitted that information to the defendants’ Internet servers. Consumers were unable to locate or uninstall the defendants’ spyware through reasonable means, according to the FTC.

The court ordered a preliminary halt to the practices pending trail. The settlement announced today ends that litigation.

The settlement announced today bars Odysseus Marketing and Rines from exploiting any security vulnerability to download or install software. It requires the defendants to obtain consumers’ express consent before downloading any software onto their computers and bars them from installing software that cannot be readily uninstalled. It also prohibits the defendants from redirecting consumers’ computers to sites or servers other than those the consumers selected to visit; from changing any Web browser’s default home page; and from modifying or replacing the search features or functions of any search engine. The settlement further prohibits the defendants from making deceptive representations – including misrepresenting that their software program will make peer-to-peer file sharing programs anonymous – and bars them from misrepresenting the benefits, efficacy, performance, cost, or features of any software program. The settlement also requires the defendants to destroy the personal information they previously collected and prohibits them from collecting or disclosing personal information in the future unless they have consumers’ express consent.

The settlement also requires Rines to obtain a $500,000 performance bond before downloading or installing software that causes the display of ads, modifies Web browsers or operating systems, or collects personal information. Finally, the settlement imposes a $1.75 million judgment, of which all but $10,000 is suspended based on the defendants’ inability to pay. Should the court find that the defendants misrepresented their financial condition, the entire $1.75 million will become due.

In April, 2005, the FTC charged that John Robert Martinson, the principal of Mailwiper, Inc. and its successor, Spy Deleter, Inc., unfairly compelled the purchase of two purported “anti-spyware” products marketed under the names Spy Wiper and Spy Deleter. According to the FTC, Martinson and his companies paid spyware distributor Sanford Wallace and his companies, Seismic Entertainment, Inc. and SmartBot.Net, Inc., to promote, advertise, and sell the Spy Wiper and Spy Deleter programs. Wallace and his companies exploited security vulnerabilities in Microsoft’s Internet Explorer Web browser and downloaded spyware onto consumers’ computers. It then sent advertisements for the Mailwiper and Spy Deleter programs. One advertisement, for example, caused the CD-ROM tray on computers to open and then displayed a “FINAL WARNING!!” to computer screens with a message that said, “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 failed to protect your computer right at this moment! Download Spy Wiper NOW!” The complaint charged that the defendants forced consumers either to spend $30 to purchase the Spy Wiper and Spy Deleter software, or spend substantial time and money to fix the computer problems they caused.

The settlement announced today bars Martinson from exploiting any security vulnerability to download or install software. It also prohibits him from downloading spyware onto consumers’ computers without their express consent; from redirecting consumers’ computers to sites or servers other than those consumers selected to visit; from changing any Web browser’s default home page; and from modifying or replacing the search features or functions of any search engine. In addition, it requires him to monitor affiliates he hires to promote or distribute software programs, products, or services to assure that they are complying with the terms of the settlement.

The settlement also imposes a $1.86 million judgment which is suspended, except for $40,000, based on Martinson’s inability to pay. If the court finds he misrepresented his financial condition, the entire $1.86 million will become due. The settlement with Martinson resolves charges against the final remaining defendant in this action. Default judgments or settlements were previously entered against all other defendants.

The Commission votes to accept the stipulated final orders were 5-0.

NOTE: Stipulated final orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Stipulated final orders require approval by the court and have the force of law when signed by the judge.

The cases were filed in U.S. District Court for the District of New Hampshire.

Copies of the legal documents associated with these cases are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. X050013 - Seismic)
(FTC File No. X050069 - Odysseus)