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May 30-June 5, 2007

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Sex.com

Relax it's just Sex.com: A screenshot from December of 1996 after the domain had been hijacked by Stephen Cohen.

Sex, Lies and Video Porn

The Internet's most insane court case is finally over. Can the online world learned anything from the multimillion-dollar power struggle over sex.com, or is it just too bizarre?

By Richard Koman


BACK 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 crook named Stephen Cohen, before Kremen spent 12 years in and out of courts getting the name back and winnng judgments against Cohen, before Kremen became a speed freak from the stress of the affair, before Cohen skipped court and the country and dumped his millions in Mexican shrimp farms and strip clubs, before ...

Well, the list goes on. For over a decade, sex.com has been the most bizarre, salacious case in Internet law. After years of judgments and appeals on both sides, the case finally came to a close last week 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 said, and he may be deemed a "vexacious litigant" against whom sanctions could be levied.

Keiren 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, said in a telephone interview from Geneva that the story "is about what men will do when everything that they want is in one possession. It was power and fame and money and sex ... and even now they're fighting each other over it."

"No one gets Stephen Cohen," McCarthy said. "Even Gary Kremen, who spent 10 years following his every move, doesn't get him. No one gets him. He's one of the most complex characters I think I've ever come across. He's a very, very clever bloke."

He also has, according to one of Cohen's ex-wives, a compulsion to break the law. "He could have easily have been a CEO, he could easily have been a politician," McCarthy said. "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."

That's how Cohen gets his buzz, McCarthy says. "When he had sex.com he was so happy because he could screw people—and he was scamming people and screwing people—but it was legit. No one was chasing him. He was legit and screwing people and making a whole lot of money and I think that was possibly the first time he was happy since he was a kid. And then, of course, he'd stolen it."

Even the story of how Cohen stole the domain from Kremen is shrouded in mystery. For years it was reported—even by the Ninth Circuit Court of Appeals—that he forged a fax from Kremen's company to convince domain registrar Network Solutions to transfer sex.com to Cohen. But McCarthy, says, that was just a coverup. First, Cohen—fresh out of jail for impersonating a bankruptcy lawyer—filled out an online form deleting Kremen as the contact and transferring the registration to himself.

"Cohen through trial and error got the computer to throw out an email to his email address and to Kremen's saying, 'Is this right, do you want to change the name and email address?'" McCarthy explains. But Kremen didn't get the email because legendary hacker Kevin Mitnick had broken into his account, and it had been shut 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. 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 ahold of the domain, and created the fax as a smokescreen after the fact. And it took years to figure out."

The coverup fax purported to be a letter from Kremen's company to Cohen, explaining that Kremen had left the company and would Cohen please take this horrible domain name off their hands. Despite the fact that Kremen's company was called Online Classifieds, the fax stated: "Because we do not have a direct connection to the internet, we request that you notify the internet registration on our behalf, to delete our domain name sex.com. Further, we have no objections to your use of the domain name sex.com and this letter shall serve as our authorization to the Internet registration to transfer sex.com to your corporation."

Sex in Computer Hell

Once he had possession of Sex.com, Cohen turned it into a money-making machine that required very little work. One of Kremen's lawyers, Richard Idell, whom McCarthy describes as a "bulldog," explained: "There was basically one page that had four large ads and some different smaller ad spaces. Basically what he offered was an advertising portal and 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 and far worse.

"Those advertisers were paying a great deal of money for those ads," Idell said. Based on the number offered to Kremen when he took it over, Cohen was probably bringing in $1 million a month in porn advertising.

Kremen went to court and received a judgment for $65 million, but a judgment isn't worth a thing if you can't collect on it and Kremen has found it very, very difficult to collect on. Cohen ignored a court order freezing his assets and wired all of his liquid assets overseas.

Kremen did get his hands on a spectacular mansion Cohen built in Rancho Santa Fe near San Diego, only to have Cohen send henchmen to rip up the place. "That was a hell of a fight, but Kremen got it because Cohen couldn't wire it like he could wire the money. He fought very hard for it—very hard for it—but Kremen beat him on it," McCarthy relates.

"And then Cohen sent round like 20 Mexicans and three of his henchmen and they tore the place apart. They tore out the plumbing, they tore out the toilets, 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. 'You may have got my house, but I'm not going to let you enjoy it.' 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 according to the Ninth Circuit opinion in Kremen v. Network Solutions:

"Then things started getting really bizarre. Kremen put up a "wanted" poster on the sex.com site with a mug shot of Cohen, offering a $50,000 reward to anyone who brought him to justice. Cohen's lawyers responded with a motion to vacate the arrest warrant. They reported that Cohen was under house arrest in Mexico and that gunfights between Mexican authorities and would-be bounty hunters seeking Kremen's reward money posed a threat to human life." The motion was denied.

Completely stymied in his attempts to collect from Cohen, Kremen also took on Network Solutions, claiming, among other theories, that they had committed the tort of "conversion"—so damaging another's property that money compensation is required. The District Court dismissed Kremen's claims against Network Solutions, holding that a domain name is intangible property that has no value.

In a seminal 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. Kozinski wrote:

"Cohen is obviously the guilty party here, and the one who should in all fairness pay for his theft. But he's skipped the country, and his money is stashed in some offshore bank account. Unless Kremen's luck with his bounty hunters improves, Cohen is out of the picture. The question becomes whether Network Solutions should be open to liability for its decision to hand over Kremen's domain name. Negligent or not, it was Network Solutions that gave away Kremen's property. Kremen never did anything. It would not be unfair to hold Network Solutions responsible and force it to try to recoup its losses by chasing down Cohen."

In light of this decision, Network Solutions' parent company VeriSign settled with Kremen for $10 to $20 million. "That flew in the face of many, many decisions where the courts had held that registration of a domain name was merely a service of a registrar, that the registrant didn't have any property rights," explained Idll. "It was a major shift."

More importantly, it was this case that broke Network Solutions' monopoly on domain registration, resulting in the current competitive market where you can register a domain name for as little as $8 a year. "Its still very undecided what a domain name is in law," McCarthy said. "But this is one of the big decisions for setting up how the Internet is seen in the law and establishing that the law can be used to connect to the Internet. Legally, Sex.com was a very big deal."

Meanwhile, Cohen was still on the lam, variously claiming to be in Monaco, Macao and under house arrest in Mexico. Wherever he was, Cohen was certainly working on one scam or another. "He was into casinos and hotels, or so he claimed," McCarthy reports. "There's no way to know. Sometimes he tells the truth, sometimes he tells a lie, it's almost impossible to tell."

Among his scams: a claim that he was bidding to buy Caesar's 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 says McCarthy, 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 arrested in 2005 in the San Diego/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. "My client's never gotten to the bottom of whether there's offshore money or there isn't," Idell said. "Cohen says he's not capable of repatriating anything—and we feel the opposite."

Cohen was only arrested after his daughter, 21–year-old Jhuliana, was arrested for transporting some 200 pounds of marijuana over the border. The Department of Homeland Security reported at the time that Jhuliana was "using a special dedicated lane for trusted travelers and had special privileges." With Cohen's name hot again, he was arrested when he personally appeared to apply for a residency permit with Mexican authorities. Ironically, he was only arrested because he was too cheap to pay a Mexican lawyer to make the application.

Since Cohen didn't cough up any information, the judge had him jailed for civil contempt for 14 months. Eventually, he was released because, the judge found, further jail time wouldn't loosen Cohen's 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.

The Showdown

The two first met at Cohen's deposition for the original lawsuit, McCarthy said. "The second day of the deposition, Kremen came in and sat in the back of the room and Cohen started going on about, 'Your client is staring at me.' There was some kind of smack about that and then they went and had dinner and got on fabulously well and Cohen told Kremen actually he had got it wrong and he owned sex.com. Then Cohen's lawyer took Kremen outside and offered him $700,000 to walk away, but by then Kremen had already spent that on lawyers. The next day Kremen went back into the deposition and Cohen gave him a T-shirt with sex.com on it.

"They met again when Cohen was in jail. They they still talk to each other on the phone now. Cohen was talking to Kremen on the phone two weeks ago. He was going on about his appeal. Just about a week before this decision came out, he was calling Kremen saying, 'They're taking a long time. Doesn't look good for you!' Trying to wind him up. He's just extraordinary."

When Winning Isn't Enough

Last week's decision warning Cohen not to appeal is extraordinary, as well. "I'm not a lawyer," McCarthy concedes, "but I think that's rather unusual for an appeals court to say, do not appeal this again, do not come to us ever again." But while Cohen's appeals have finally come to an end, Kremen's campaign to get hard cash out of Cohen continues.

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 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," said McCarthy. "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 to Cohen to hand over any money whatsoever is an admittance that Kremen beat him. As long as Cohen has got the money somewhere and Kremen hasn't got it, Cohen still feels like he's won somehow, he still feels that Kremen didn't nail 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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