On Thursday, the U.S. District Court in Concord, N.H., granted a temporary restraining order against formerand his two companies, Seismic Entertainment Productions and Smartbot.net.
U.S. District Court Judge Joseph DiClerico Jr. ruled that Wallace and his businesses must refrain from exploiting Internet security vulnerabilities. Specifically, Wallace was given 24 hours to remove--from any Web site, bulletin board or Internet server controlled by him or his companies software--script that exploits vulnerabilities in Web browsers in order to install, download or deposit software onto a computer without a user's knowledge.
Wallace's attorney could not be reached for comment. But a message posted on a Web site controlled by one of Wallace's companies and signed "from Sanford Wallace" says he plans to cooperate with the authorities and "show that our operations are legal."
The court's ruling is significant because it indicates that the existing federal trade laws could be sufficient in prosecuting spyware cases.
"We view the court's granting of temporary relief as a strong victory for consumers," said Laura Sullivan, an attorney for the Federal Trade Commission. "It will be an effective tool in protecting them against the unfair use of spyware."
Congress has already begun drafting legislation aimed at protecting consumers against spyware. Earlier this month, the U.S. House of Representatives, which prohibits companies and individuals from "taking control" of a computer, surreptitiously modifying the URL of a Web browser's home page or disabling antivirus software without the proper authorization.
The suit, filed by the Federal Trade Commission earlier this month,of fraudulently installing advertising and other software on consumers' computers through his network of Web sites. Regulators allege that Seismic and Smartbot marketed anti-spyware software called Spy Wiper and Spy Deleter via pop-up ads for $30 per product. The two companies allegedly exploited a vulnerability in Microsoft's Internet Explorer browser, allowing them to reconfigure computers and surreptitiously install software code without users' knowledge.
That software code allegedly changes users' home pages and modifies the browsers' search engines, so that when users typed in an address, browsers go to one of the Web sites owned by the two companies. The software also allegedly downloads and installs various advertising and software programs.
In a statement posted at default-homepage-network.com, Wallace says he does not develop spyware or adware. He also says that neither he nor his companies "develop or directly sell to consumers any anti-spyware software" or "knowingly participates in ANY scheme to collect personal information."
"Our role is that of a Webmaster/Web server," the statement reads, in part. "The only income we derive is from providing these services for other companies."
Wallace is the first alleged spyware maker to be sued for violating federal trade laws. The case is part of antaken by the Federal Trade Commission against alleged peddlers of spyware. The FTC is arguing that allowing spyware to be downloaded without a user's knowledge is an unfair practice similar to the illegal practice of unauthorized billing.
A preliminary hearing in the case is scheduled for Nov. 9. At that point, Judge DiClerico will decide whether to extend the restraining order through the duration of the case.