Spyware developers net huge profits, outrage

Mass Paralysis
The same ambivalence was evident in April, 2005, when Direct Revenue released a concoction known as Aurora. The program clearly labeled ads as coming from the company, a gesture designed to build credibility. But Aurora had powerful features that fought off competing spyware and security programs. The company also raised the number of pop-ups it sent users to as many as 30 a day.

Disaster ensued, as Aurora paralyzed thousands of computers. Matt Oettinger, who ran media operations at Fastclick, an advertising network that bought ads from Direct Revenue, found his home PC afflicted by Aurora, e-mails in court filings show. In June he ordered all Fastclick ads disentangled from Aurora. Branko Krmpotic, the managing director of Technology Investment Capital Corp. (TICC), which had invested $6.7 million in Direct Revenue, also caught the Aurora bug and couldn't kill it, according to e-mails. Eventually, Direct Revenue had to send its customer support director to fix Krmpotic's machine. After receiving complaints about Aurora, Insight Venture, another major investor, told the company to remove Insight's name from the Direct Revenue Web site. Fastclick declined to comment; Krmpotic didn't return calls.

Even Aurora's creators fell victim as the program froze computers at Direct Revenue. One sales staffer, Judit Major, documented receiving more than 30 pop-up ads in one day, according to e-mails. Her computer crashed four times. "We are serving WAY TOO MANY pops per hour," wrote Chief Technology Officer Daniel Doman in a June e-mail to the company's brass. "If we overdo it, we will really drive users to get us the hell [off] their machine. We need to BACK OFF or we will kill our base."

By then consumer complaints were pouring in to Attorney General Spitzer's office. He filed suit in April, after his staff had hauled away 150 boxes of the company's e-mails. Spitzer alleges that he found numerous examples of Direct Revenue spyware downloaded with misleading user agreements or no disclosure at all. In many cases, the download was performed by a distributor on behalf of Direct Revenue, but company executives repeatedly conceded in e-mail that users were in the dark about how its programs got into their computers. This, Spitzer argues, amounts to illegal deception.

Persistent headaches
A Direct Revenue spokesman, Michael Spinney, says the company is "mystified" by Spitzer's allegations. It cleansed its practices more than nine months ago, Spinney says, and now puts its name on all its pop-up ads. It also now makes its software available for deletion in a computer's Add/Remove Programs registry and has limited its use of distributors. Before these changes, Spinney asserts, Direct Revenue employed practices common in its industry. He wouldn't comment on Spitzer's individual allegations.

The anti-spyware activists and computer security firms confirm that Direct Revenue has dropped its most destructive programs, such as Aurora. But they emphasize that the company continues to cause serious headaches. Tokyo's Trend Micro Inc. offers an online service that scans customers' troubled computers. In April it identified Direct Revenue's spyware as the culprit in 9,400 computer scans. That's down from 14,000 in January, but it represents a substantial level of annoyance. "Direct Revenue is still on everyone's top 10" of reviled spyware companies, says Anthony Arrott, Trend Micro's spyware research manager.

Deborah Maradei-Ugel, a loan officer in Santa Clarita, Calif., says she receives more than 20 pop-ups a day on her home computer as a result of Direct Revenue spyware. She complained to the company, but removal instructions it sent her are impossible to follow, she says. Her machine frequently stalls and requires restarting. "You hit your computer," she fumes, "but it doesn't help."

The way Direct Revenue describes its software during the download process remains vague and misleading, Edelman and other critics say. The company now bundles ad programs with Kazaa, an online service offering music and other digital content. Kazaa gives users a choice between a $30 version of its program and a free version labeled "ad supported." But few ordinary consumers would understand that ad-supported means they get separate software from Direct Revenue that will monitor them online and serve a steady stream of pop-ups, Edelman says. Kazaa declined to comment.

Direct Revenue has lost business and reduced its headcount to a couple dozen employees. The four founders still own 55percent of the company, according to Spitzer's filing, and Abram is still seen around the office in his sharp suits. But he no longer serves as CEO. Sales gurus Stein and Nute have moved on to another Internet venture. Many major companies, such as Cingular and Yahoo, have severed connections with Direct Revenue. But the ads of others, including Vonage, continue to appear in Direct Revenue pop-ups. Insight and TICC remain investors.

Among Direct Revenue's alumni, pride over technical cunning mingles with regret for exasperating so many computer users. After waffling on the issue during a long interview, one former Dark Arts wizard sighs and sums up his version of the company credo with an elegiac observation by abolitionist Frederick Douglass: "Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them."

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