FTC Orders Wallace To Pay $4 Million For Spyware Scam

Users were duped into thinking they needed software being sold by "Spam King" Sanford Wallace because he exploited an Internet Explorer vulnerability to install real spyware on their PCs.

Former self-styled "Spam King" Sanford Wallace was ordered by the Federal Trade Commission (FTC) Thursday to pay back more than $4 million that he illegally made by hoodwinking users into buying anti-spyware software to fix imaginary problems.

Wallace, who in 1998 swore off spam, was ordered by a federal court to give back $4,089,500 made by convincing consumers to pay $30 per copy for Spy Wiper and Spy Deleter, two purported anti-spyware programs.

Users were duped into thinking they needed the software because Wallace exploited an Internet Explorer vulnerability to install real spyware to their PCs, including a small program that opened the CD-ROM tray and displayed the message "If your cd-rom drive’s open . . .You DESPERATELY NEED to rid your system of spyware pop-ups IMMEDIATELY! Spyware programmers can control your computer hardware if you failed to protect your computer right at this moment! Download Spy Wiper NOW!”

The FTC first filed a lawsuit against Wallace and his SmartBOT company in October 2004; in January 2005, the federal agency announced an agreement with Wallace that banned him from distributing any software until the case was settled.

An ad broker who distributed online ads that contained Wallace’s spyware was also ordered to give up $227,000 in ill-gotten gains.

The FTC has been aggressively pursuing people like Wallace who tell consumers that their PCs are infected with spyware or other malicious code, then offer to sell them cleansing software. In January, for instance, the FTC ordered the makers of another pair of rogue program, SpywareAssassin and SpyKiller, to fork over $2 million in illegal profits.

The 23-page judgment against Wallace and his company can be downloaded in PDF format from the FTC Web site.

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