FTC takes aim at alleged spyware distributor

In a lawsuit, the commission alleges that two companies engaged in unfair acts and practices with their marketing and software.

Federal Trade Commission officials have filed a lawsuit to halt an alleged spyware distributor from surreptitiously installing software on users' computers and then trying to induce them to purchase anti-spyware products, according to court documents filed Thursday.

The FTC is seeking an injunction against Sanford Wallace and his two companies, Rochester, N.H.-based Seismic Entertainment Productions and Richboro, Pa.-based Smartbot.net, according to filings in the U.S. District Court for the District of New Hampshire. The lawsuit comes on the heels of U.S. House of Representatives' approval earlier this week of the Spy Act, which is designed to do away with the most deceptive forms of spyware.

In its lawsuit, the FTC is alleging that the defendants engaged in unfair acts and practices with their marketing and distribution of software programs to consumers.

Wallace could not be immediately reached for comment, but a message posted on one of his Web sites states that he is the victim of political posturing.

Regulators allege that since December 2003, Seismic and Smartbot marketed anti-spyware software called Spy Wiper and Spy Deleter on behalf of others for $30 per product. The two companies allegedly advertised the products via pop-up ads that redirected consumers to Web sites the defendants controlled.

The defendants allegedly exploited a vulnerability in Microsoft's Internet Explorer browser, allowing them to reconfigure the computers and surreptitiously install software code without users' knowledge.

That software code would allegedly change the user's home page and modify the browser's search engine, so that when a user typed in an address, the browser would go to one of the Web sites owned by the two companies. The software also allegedly would download and install various advertising and software programs, including Favoriteman, TrojanDownloader, Clearsearch, WinFetcher, 7Search.com and VX2. This created an "incessant stream" of pop-up ads to be displayed, the lawsuit alleges.

FTC investigators claim that the defendants were able to download and install the software without triggering IE's notification message that such activity was taking place on the user's computer.

With the software installed, the defendants allegedly used a variety of means to direct users to Web sites they controlled, including default-homepage-network.com, downloads.default-hompate-network.com and passthison.com.

Once users were allegedly redirected to the Web sites, they would be hit with a flurry of pop-up ads.

"Defendants' practices cause or have caused consumers' computers to malfunction, slow down, crash, or cease working properly, and cause or have caused consumers to lose data stored on their computers," the lawsuit alleges.

A message posted on default-homepage-network.com offers a response to the charges: "Statement regarding FTC action: We believe the U.S. government is attempting to enforce federal laws that have yet to be enacted. We feel this is a political move and it is being made at the expense of legal business operations.

"I am not surprised at all that my companies and I, Sanford Wallace, were picked as the 'poster boy.' I find the timing and target of this action to be extremely convenient and painfully obvious. We deny any wrongdoings and plan to pursue all legal protections, remedies and freedoms. Sanford Wallace, SmartBot.NET, Inc."

No further comment was immediately available from the company. Directory assistance in Rochester doesn't have a listing for Seismic, and directory assistance in Richboro does not have one for Smartbot.net. A message placed with the Web site administrator for a site owned by Seismic was not immediately returned.

The FTC declined to comment on the lawsuit. A press conference is scheduled for Tuesday morning.

Momentum is building in Congress to prohibit the most serious forms of spyware. Under the proposed Spy Act, which the House approved on Tuesday, companies and individuals would be prohibited from "taking control" of a computer, surreptitiously modifying a Web browser's home page, or disabling antivirus software without the proper authorization.

The Spy Act would also give the FTC power to police violations and levy fines of up to $3 million in the most serious cases. The Senate is considering a similar bill.

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