Web of intrigue: Sex sites are worth their weight in golden lawyers as Gary Kremen of sex.com learned.
The twisted saga of sex.com—a stolen domain name, missing money and an escape to Mexico—returns to court in San Jose
By Matt Stroud
IT MAY involve the Internet's most coveted porn site, with close to $100 million in revenue, but the weird story behind the fate of sex.com is all crime and no sex.
In 1995, www.sex.com was pilfered from its rightful owner, Gary Kremen, in a stunning domain-registration con. Kremen says he spent $500,000 over five years to recover it, and in 2000, he finally did. But since then he's been on a crusade to recoup the money fraudulently collected by the domain's hijacker, Steven M. Cohen.
Kremen sold the sex.com site to Escom LLC in January of last year, for between $12 million and $14 million. When Playboy reached an agreement with Escom to run the site in October, a tech column in the San Francisco Chronicle called it "the perfect end to the Internet's first epic saga." But, since then, "the perfect end" has been anything but.
"I also thought that the sale of sex.com was a beautiful way of rounding it off," says Kieren McCarthy, a London-based tech writer and author of the forthcoming book The Brutal Battle for Sex.com. "But then Cohen got out, his Mexican lawyer was shot at, the money is still outstanding, Kremen is determined to get something out of Cohen, and Cohen is determined not to pay." The end, says McCarthy, is nowhere in sight.
Neither Kremen, 43, nor Cohen, 58, are willing to budge on their positions: Kremen demands to be paid ("$82 million and counting," he says, which includes a $65 million judgment, plus fees and inflation), and Cohen maintains there's no money to be had—his assets are gone, he says.
From there, it only gets more complicated. In December, after three years on the run in Mexico, and 14 months in jail, Cohen was released by U.S. District Court Judge James Ware in San Jose. Cohen's task: to find and deliver any assets he collected from sex.com. On Feb. 26, Judge Ware will hear further testimony in the case, at San Jose's Federal Building. Gary Kremen has said he'll attend. But the big question is: will Cohen? And will he bring information about his assets?
"Of course he'll be there," says Steve Teish, Cohen's current legal representative, who initially contacted Metro through an email account at firstname.lastname@example.org. "He's been filing papers and very forthcoming. He's not going anywhere. Gary Kremen has been employing various PR measures to rub [Cohen's] face in the mud, but the reality is that he's penniless, and I've found him to be remarkably honest and forthcoming. He'll be in court."
And the assets?
"There are none," says Teish.
Kremen believes that Cohen will appear in court, but he doesn't buy Cohen's assertion that he has nothing left after six years running sex.com. "[I don't understand] how someone like Cohen can get away with ripping people off in such a big way," Kremen says.
A History of Sex.com
In 1994, Kremen, an entrepreneur who would later help found and build www.match.com, registered www.sex.com with Network Solutions Inc. (NSI), for free. NSI, based in Mountain View, was dispensing domains at the time, because the National Science Foundation was paying it to do so. Kremen saw an incredible opportunity and took it. But he initially did nothing with the domain.
Cohen—who only months earlier had been released from prison after a 46-month sentence for bankruptcy fraud, false statements, and obstruction of justice—also saw the potential in sex.com. He barraged NSI with fraudulent phone calls, emails and forged letters, attempting to transfer sex.com to his name.
This wasn't Cohen's first scam, by any means. "He was a paperhanger for a while, cashing bad checks," says McCarthy. "He had a scam selling software licenses over and over again. He had a scam with a car rental firm where he overcharged just a little bit for petrol each time and pocketed it. He was the world's first software pirate, hosting MS-DOS and Lotus123 and various other software on his servers for download to paying customers of his bulletin board system. It goes on and on. I'm sure I don't know even a fraction of the scams he has pulled off over the years."
Eventually, this one worked. He submitted a forged letter, purportedly from Online Classifieds Inc., Kremen's trading corporation.
In hindsight, it's incredible that anyone took the letter seriously. It was addressed to Cohen, but it was sent to NSI by fax—supposedly because Cohen's company—an Internet business—did not have Internet access. The letter explained that Kremen had been fired, and, for unexplained reasons, the company was handing over sex.com to Cohen. And then, the grander trick: "This letter shall serve as our authorization to the Internet registration to transfer sex.com to your corporation."
NSI caved. An employee switched ownership of the domain to one of Cohen's companies, Sporting Houses of America, in October 1995. Shortly thereafter, Cohen developed an advertising-heavy site on sex.com, which, at its height, received more than 25 million hits per day, and between $50,000 and $500,000 every month.
But Kremen persisted. Between November 1997 and November 2000, Kremen filed a lawsuit against Cohen, opposed the sex.com trademark, filed four amended complaints, and finally, in November 2000, recovered the domain.
Meanwhile, Cohen dipped. As the legal situation began to heat up—an arrest warrant was filed before his February 2001 court date—he fled across the Mexican border to Tijuana. Though he didn't show up for any of his court dates that year, he was ordered to pay $25 million, and later, in May 2001, an additional $40 million, based on court estimates of how much money he made from the domain. Since he was absent for the decisions, he was held in contempt of court. In May 2001, he was declared a fugitive.
Kremen offered a $50,000 reward for information about Cohen's location, and says he hired "loads of private investigators" to find Cohen. Rumors of hit men and death threats abound. One tale, specifically, regards a full-fledged shootout between bounty hunters trying to extract Cohen from his Tijuana residence, and Mexican police who were keeping him under house arrest at the time. Through all this, Cohen remained uncaught. While on the lam, he consistently filed appeals to the U.S. District Court in San Jose, but none were validated because he was a wanted criminal evading authorities.
For four years, he remained on the run. But in October 2005, Cohen was arrested by Mexican authorities for an immigration violation (the details of which are hazy), and extradited to the United States. He spent 14 months in jail, and, as noted, was released in December to find the assets he'd ostensibly lost between 2001 and 2005.
But if Steve Teish's pretrial comments are any indication, Cohen will arrive in court empty-handed. "[Cohen] has no assets," Teish says. "This whole thing is a joke. The whole case went by default. The whole judgment was based upon flawed accounting done on speculation. It's all based upon conjecture. There is no evidence that Cohen has anything. They've been chasing a chimera for years. There's nothing there. It's all fantasy."
"Sex.com will be remembered as the case that helped make the building blocks of the Internet property, rather than just tokens handed out by an all-controlling company," McCarthy says. "It helped pull the Internet into the real world in a legal sense."
In the early 1990s, according to Doug Wolf, a Boston-based lawyer who specializes in trademark prosecution and Internet issues, domain name disputes could only be resolved in federal court.
"If a company had a federal trademark registration, it could ask the Internet's governing body, Internet Corporation for Assigned Names and Numbers (ICANN), to place the domain name on hold—so that it could not be used by either party until the dispute was resolved," says Wolf.
Sex.com has helped change that, giving actual property rights to those who own domain names, and setting an example of how to decide a website's value. The only problem, then, becomes: how do courts enforce that monetary value when someone's been wronged?
"That's tricky," Wolf says. "This is like the O.J. Simpson case, in a way. [Cohen] owes money, but there's almost no way to ensure he'll pay it. I'm curious to hear what [Judge Ware] decides."
Gary Kremen has already received a multimillion-dollar San Diego mansion that Cohen once owned, and he's said he'll take more of Cohen's property if funds aren't an option. In short: he's not budging.. But Cohen seems equally determined.
As for what might happen in the future, McCarthy says it best: "[In my estimation], this will end when Stephen Michael Cohen breathes his last breath. And even then I wouldn't put it past him to devise something to hit Kremen after he's gone."
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