Two Firms Settle Claims of Spyware

Two Southern California companies have agreed to pay $2.05 million to the Federal Trade Commission to settle charges that they created spyware programs that reached 18 million computers worldwide.

The payment from Enternet Media Inc. and Conspy & Co. is the second-biggest spyware settlement collected by the agency. It represents money that the companies earned from advertising revenue generated by their planted software.

“This spyware operation was one of the most pervasive and widespread we have encountered,” said Mona Spivack, lead attorney in the FTC bureau of consumer protection. “These guys were key players in the spyware arena.”

The companies were run by brothers Nima Hakimi, 21, and Baback Hakimi, 24, both of Woodland Hills. They live with their mother, Lida Rohbani, who was also named in the settlement, which was announced Wednesday.

The brothers didn’t admit guilt in the settlement. In November, a federal judge ordered the companies shut down and their assets frozen.

Late last month, the brothers pleaded guilty to three counts of computer crime, were each fined $15,000 and were sentenced to 200 hours of community service and 120 days in jail or 60 days of Caltrans work, a spokesman in the Los Angeles city attorney’s office said.

Enternet’s spyware worked by causing “installation boxes” to appear on consumers’ computer screens, offering free ring tones, song lyrics, security software and the like, Spivack said. When users downloaded these free items, their computers were infected with spyware that tracked their Internet wanderings and inserted banner advertisements and pop-ups that were difficult to remove. Enternet received money from the advertisers whose products were featured, Spivack said.

Enternet also “hijacked” home pages, taking consumers to the websites of featured advertisers rather than where they wanted to go, the FTC said. The defendants deny that allegation.

Anthony Dain, an attorney for the defendants, said that consumers consented to downloading these advertisements by clicking on an agreement that popped up on their screens. He compared his clients’ products to services such as those offered by Google Inc. that display ads related to a person’s Internet searches.

“When you’re on the Internet, it is like driving on a highway – it’s not something that you can do blindly,” he said. “If you do receive a toolbar and don’t want it, you have to figure out how to uninstall it.”

Dain said that the FTC was being overprotective of consumers and that only 100 complaints about Enternet’s actions were filed with the agency.

That idea – that computer users should be held accountable when they agree to download programs while surfing the Web – is a less-convincing one because of this settlement, said Ari Schwartz, deputy director of the Washington-based Center for Democracy and Technology.

“The case ensures that software companies can’t hide practices that harm consumers deep down” in software licensing agreements, he said.

Spyware costs consumers $2 billion annually, according to a recent Consumer Reports study. Spyware is costly because it forces consumers to purchase anti-spyware software and often to hire professional help or get a new computer when their computer is infected.

The FTC said Thursday that social networking site Xanga.com had agreed to pay $1 million for collecting and disclosing personal information about children without first obtaining parental consent. Xanga allowed 1.7 million users who said they were younger than 13 to create accounts, some of which contained photos and online journals.

 alana.semuels@latimes.com