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May 30-June 5, 2007

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Sex, Lies and Red Tape

The curious saga of Sex.com and the two men who won't let it go

By Richard Koman


B ack in 1994, Internet entrepreneur Gary Kremen had what seemed like a good idea: register the domain name "Sex.com." That was before the name was stolen by a man named Stephen Cohen; before Kremen had spent 12 years in and out of courts; before Cohen hired thugs to destroy his own home so that Kremen couldn't have it; before Kremen became a speed freak from the stress of the affair; before Cohen skipped the country and dumped his millions into Mexican shrimp farms and strip clubs. Yeah, 1994, before all that, when purchasing a domain name, even one with such widespread appeal, was a cost-free affair.

For over a decade, the dispute over Sex.com has been the most bizarre, salacious case in Internet law. Indeed, the case actually changed U.S. law by establishing domain names as personal property, and thus protecting them from illegal conversions. After years of judgments and appeals on both sides and over $5 million in legal fees, the case finally came to a close on May 9 as the Ninth Circuit dismissed Cohen's latest appeal--his fourth--and insisted that the case come to an end. Another appeal from Cohen, the court warned, and he may be deemed a "vexacious litigant," against whom sanctions could be levied.

In an overseas telephone interview from Geneva, Kieren McCarthy, who spent five years researching a book about the case, Sex.com: One Domain, Two Men, Twelve Years and the Brutal Battle for the Jewel in the Internet's Crown, says that the story "is about what men will do when everything that they want is in one possession: power and fame and money and sex." (Unfortunately, the book is only available in the United Kingdom.)

"No one gets Stephen Cohen," McCarthy says. "Even Gary Kremen, who spent [over a decade] following his every move, doesn't get him. He's one of the most complex characters I think I've ever come across. He's a very, very clever bloke." Even the story of how Cohen stole the domain from Kremen is shrouded in mystery. At the time, Kremen was an Internet pioneer who had purchased Match.com for $2,500 and had various other investments. Freshly released from federal prison after serving four years for impersonating a bankruptcy lawyer, Cohen apparently forged a fax to convince domain registrar Network Solutions to transfer Sex.com to him. But McCarthy says that was just a cover-up.

First, Cohen filled out an online form deleting Kremen as the contact and transferring the registration to himself. Network Solutions sent an e-mail to Kremen and Cohen for confirmation. But Kremen didn't get the e-mail because legendary hacker Kevin Mitnick had broken into his account and shut it down.

"Then, because he's incredibly persuasive, Cohen called up and persuaded whoever was on the other end of the line that the change was legit," McCarthy recounts. "So they put the change through. Then, afterwards, he wrote this fax as an elaborate smokescreen. For years afterward, people thought it was the fax that had done it. In actual fact, he had found a very clever way to get a hold of the domain and created the fax as a smokescreen after the fact. And it took years to figure out."

Once he had possession of Sex.com, Cohen turned it into a money-making machine that required very little work, reportedly earning as much as $750,000 a month in pay-per-click viewings and just as quickly transferring the money out of the country. One of Kremen's lawyers, Richard Idell, explains: "There was basically one page that had four large ads and some different smaller ad spaces. If you clicked on one of these ads, you then got sent to one of these sites, from which you could not escape." Trying to leave the sites resulted in more and more porn windows popping up until your entire computer ground to a halt with flashing graphics of naked women, oversized penises and worse.

"Those advertisers were paying a great deal of money for those ads," Idell said. Meanwhile, Kremen spent some $5 million in legal fees trying to get the domain back, at one point even considering bankruptcy.

In 2000, Kremen went to court. The judge ruled that the domain should be returned to him and that he should receive $65 million. But a judgment isn't worth a thing if you can't collect on it. Cohen ignored a court order freezing his assets and audaciously wired all of his liquid assets overseas before fleeing the United States himself .

Kremen did get his hands on a spectacular mansion Cohen built in Rancho Santa Fe near San Diego, but Cohen hired people to wreck the place first. "Cohen sent 'round like 20 Mexicans and three of his henchmen, and they tore the place apart," McCarthy says. "They tore out the plumbing, they tore out the carpet, they pulled out the wooden panels from the study walls. I mean, it was total devastation. It was just two fingers up to Kremen. He was just furious Kremen had beaten him."

After Cohen ignored court orders compelling him to appear and explain why he shouldn't be held in contempt, the judge declared him a fugitive from justice and signed an arrest warrant. (Cohen was nowhere to be seen, but Kremen posted a $50,000 bounty on Sex.com for anyone who could bring him in.) Cohen's lawyers countered that he wasn't a fugitive because he was under house arrest in Mexico.

Completely stymied in his attempts to collect from Cohen, Kremen took on Network Solutions for giving away his domain. In a seminal 2003 opinion, Justice Alex Kozinski wrote for the Ninth Circuit that property need not be tangible in order to have a value and that Network Solutions could be held at fault for giving away Sex.com. In light of this decision, Network Solutions' parent company VeriSign settled with Kremen for an amount somewhere between $10 million and $20 million.

Meanwhile, Cohen was still on the lamb, variously claiming to be in Monaco, Macao or Mexico. According to one of his five ex-wives, Cohen has a compulsion to break the law. "He could have easily have been a CEO, he could easily have been a politician," McCarthy says. "He's got the brains and the gift of gab. He's got it, but he also has this perverse need to screw people. He's an extraordinary character, sometimes utterly charming, sometimes utterly ruthless. A sociopath, I suppose."

Wherever he was, Cohen was certainly working on one scam or another. "He was into casinos and hotels, or so he claimed," McCarthy reports. Among his scams: a claim that he was bidding to buy Caesars Palace in Las Vegas, which McCarthy says was actually a stock scam to drive down the share price of the legitimate bidder, buy up the company's stock and then sell for a profit when Cohen's bid was revealed to be bogus.

The trick seemed to have failed, but McCarthy reminds that there's really no way of knowing. "He's so good at hiding stuff, and he sort of jumps and runs and hides. It's extremely difficult to know where he's been and not been. I'm sure there's hundreds of scams he's pulled off that we don't know about."

When Cohen was finally arrested in 2005 in the Tijuana area, Kremen may have thought he was going to see some of those millions the court awarded him. But when Cohen was hauled back into court, he denied having any money and the judge had him jailed for civil contempt for 14 months. He was released last year because further jail time wasn't loosening his lips. "Cohen spent what must have been 14 miserable months in jail and he stuck it out just so he didn't have to give Kremen any money," McCarthy said.

Kremen has already been handsomely rewarded for his persistence in regaining the domain. He made millions operating Sex.com as an adult "search engine" (as his attorney Idell puts it), and he eventually sold the domain for $12 million. So what drives Kremen to keep pursuing Cohen for an amount that is now, with interest, well over $80 million?

"He could have walked away with millions and just got on with his life," McCarthy speculates. "But he wouldn't let it go. He just wouldn't. Gary Kremen's won. He's won back the domain, he's beaten him in court, he's beaten him to everything, except for the money. And Kremen just wants Cohen to give him a chunk of money, because he knows that for Cohen to hand over any money whatsoever is an admittance that Kremen beat him. I think Kremen would take even a tiny figure, because it would kill Cohen to pay even $1,000. It would kill Stephen Cohen to do it, because it would mean that Kremen had beaten him. I don't think Kremen expects to get it all.

"Now that it's over, he just wants Cohen to realize he was beaten."


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