New York’s Spitzer Sues Web Company Intermix in an Effort to Combat Spyware

In the first effort by a state to curb spyware, New York Atty. Gen. Eliot Spitzer sued Intermix Media Inc. of Los Angeles on Thursday, accusing the company of hiding malevolent programs inside games and screen savers.

The suit, filed in New York, alleges false advertising, deceptive business practices and trespassing. It claims that Intermix -- which operates more than 40 websites offering free downloadable entertainment programs -- included hidden spyware that generated pop-up advertising, redirected Web searches, changed home pages and added unwanted links to toolbars.

“These fraudulent programs foul machines, undermine productivity and in many cases frustrate consumers’ effort to remove them from their computers,” Spitzer said in a statement.

Intermix Media issued a statement saying it had stopped distributing programs mentioned in the suit and blamed much of the situation on “prior leadership.” Executives of the company declined to be interviewed.

Shares of Intermix Media fell 83 cents, or more than 17%, to $3.97 on the American Stock Exchange on Thursday.

The firm, known until last year as EUniverse, is no stranger to controversy.

In 2003 it was riding high as a post-tech-bubble rarity that reported profit running websites. But after an announcement that a restatement of its financial disclosures was in the works, Nasdaq, which listed the company at the time, suspended trading. When the restated earnings were released, the previously reported profit was gone.

The company is back in the public eye, accused of spreading spyware -- software that typically tracks users’ Internet searches and viewing history in order to send targeted advertising in the form of pop-up ads. Removing it often requires special programs or expert help.

“This is not about advertising,” said New York Assistant Atty. Gen. Justin Brookman, who oversaw the case. “It’s the new graffiti.”

Ari Schwartz, associate director of the Center for Democracy and Technology, applauded the suit. He said that although spyware has been a major problem for some time, it has been difficult for law enforcement to trace its source.

“The companies spreading spam are good at hiding their tracks, working through distributors and affiliates, using special codes that are hard to decipher,” Schwartz said.

But he said investigators were gaining expertise in the field and he expected more lawsuits to be filed soon.

Brookman said his office began its investigation in October, using dedicated computers to download programs from sites suspected of distributing spyware.

“We took an electronic snapshot that would give us a list of all the programs on a computer, and then we’d download something like a screen saver,” Brookman said. “We’d take another snapshot and see if additional programs got installed.”

Brookman said some sites allegedly spreading spyware were owned by Intermix Media. He said investigators estimated that 3.7 million spyware programs were distributed by the company to New York state residents without adequate notification over about two years.

California Atty. Gen. Bill Lockyer did not know about Spitzer’s suit before it was filed, spokesman Tom Dresslar said. But his office shares New York’s “objective of protecting consumers against spyware and all other invasions of privacy.”

California is one of only three states that has passed laws specifically targeting spyware. No actions have been brought under the law, which went into effect Jan. 1.

Dresslar said Lockyer, who did not support the bill when it was in the Legislature, considered it “virtually unenforceable.”

“One of the main reasons is that it requires us to show intent to deceive, which is very difficult to prove,” Dresslar said.