Carreon viewed the moment in typically philosophical terms. As he later wrote, “Sun Tzu compares a force attacking with momentum to a raging flood tossing boulders like pebbles. A good way to generate a raging flood is to build a dam, then break it.” After months of slogging through the courts, the videotape of Cohen’s theft was just what they needed to break the dam. And there was no time to waste. Every month, Carreon discovered, Cohen was getting his Sex.com profits sent to the account of a company called Omnitech—as much as $1 million.
In total, they found, Cohen had grossed hundreds of millions, clearing $43 million from ads and membership fees, more than half of what the online auction site eBay had earned in its entire history. Sex was not only the biggest source of gold online, Cohen was at the end of the rainbow with the biggest pot. But there was a twist. Every month, Cohen was draining the account by transferring the funds to banks in Luxembourg. There was no doubt about it. He was laundering his Sex.com cash, and hiding it offshore. Pam Urueta, another attorney on Kremen’s team, likened the hunt for Cohen and his money to “trying to nail a jellyfish to a wall.”
On November 27, 2000, it was time at last to find out if Judge James Ware, who was presiding over the case for the U.S. District Court for the Northern District of California in San Jose, agreed. Kremen and his team filed into the courtroom, only to find that Cohen, not surprisingly, was nowhere in sight. As Ware listened intently, Wagstaffe firmly recounted the undisputed evidence: Cohen’s forgery of the letter to Network Solutions, his subsequent hijacking of Sex.com, his impersonation of a lawyer to steal the bank documents from Kinko’s. And, despite the best efforts of Cohen’s attorneys that day, Judge Ware agreed. “Cohen’s interest in this domain name Sex.com is based upon what appears to the court to indisputably be a bogus document,” he said, “and the consequence of that is to take the name back to its original registrant—and that is Mr. Kremen.”
And, just like that, it was done. Ware ordered that Sex.com be returned to Kremen once and for all. Furthermore, because Cohen, as Ware wrote in his judgment, had “engaged in activities designed to conceal money” by moving his Sex.com profits offshore, he ordered Cohen to provide a full accounting of every penny he had made from the site. In the meantime, until the final damages were determined, the judge ordered him to put $25 million into a federal court account.
When Kremen heard the news, he felt a rush of dopamine like a thousand hits of meth. Outside the courthouse, the press descended upon him, as he pumped his fist into the air, relishing the victory. The win was considered a pivotal moment in the evolution of the new world online. Reuters wrote that it “marked an important step in resolving the issues of Internet claim-jumping and the real value of cyber real estate.” The San Jose Mercury News called it “a significant victory for Kremen in one of the most widely watched domain-name disputes in cyberspace.” As Pam Ureta put it, “This ruling sends out the clear message that the domain name is a valuable property right that can and should be protected.”
As Kremen gazed euphorically upon the crowd, he could feel his life changing. After spending countless days and nights, as well as $2 million in legal fees, he had proven victorious. All the pain, all the suffering, the late nights, the sleuthing, the nightmares, done. “It shows that eventually the little guy can win at a great cost,” he told a reporter from Wired. When asked what he was going to do with the site now that it was his, Kremen said he was going to clean it up for good. He was thinking of making it like an educational Google for sexuality and relationship links. He still thought of himself as a nice Jewish kid from Skokie, Harriett and Norman’s son. What Cohen had done had “no value,” he said. “I plan to do something not as disgusting and sicko as this guy.”
But no matter what he did, one thing was true: he was now the owner of the “hottest address on the web,” as one reporter put it, with an estimated value of $100 million. The inventor of online dating was, for the moment at least, the accidental king of online porn. And he had three missions: to build Sex.com into his own empire, to get an apology—and perhaps financial compensation—from Network Solutions, and to wring from Cohen every single one of the tens of millions of dollars that his nemesis had already made from the site. He may have woken up in the Dogpatch but he wasn’t going to sleep with the hounds anymore.
CHAPTER 10
THE CRAZY AUNT IN THE ATTIC
On March 10, 2000, investors on Wall Street stumbled over each other to buy rounds of drinks. They were celebrating the so-called new economy coming from Silicon Valley. That day, the NASDAQ hit its sixteenth record number of the year. Buoyed by technology giants such as Dell, Microsoft, and Qualcomm and day traders investing from their computers at home, the market broke above 5,000 points—capping off one of the business world’s most incredible runs in recent memory, increasing five-fold from 1995. The combined value of tech stocks was $6.71 trillion.
The internet, once the purview of nerds and pariahs like Kremen and Cohen, had boomed into the mainstream beyond anyone’s imagination. The number of people online had grown from 16 million to more than 300 million in five years. In 1995, only 14 percent of Americans used the internet, but now the number was 46 percent. As a result, people were spending more and more time online—over four hours a week—and leaving old media for new media. More families in the United States now subscribed to online services than newspapers. Consumers spent $20 billion online the previous year, with Amazon attracting more than 17 million people a month. In January, Steve Case, the founder of America Online, announced plans to acquire Time Warner for $182 billion in stock and debt.
With money to spend, dot-coms took over 20 percent of the Super Bowl ads that month, transforming, among other things, the sock puppet mascot for Pets.com into a national meme. Seemingly overnight, dot-com start-ups such as Monster.com and Kozmo.com, a home delivery service, were the new wunderkinds of the business world. Their motto was “get big fast,” offering their goods and services for free to build market share and cash in later. “When you break through 5,000 everyone wants to be in the game,” as the head of one NASDAQ trading company told CNN at the time.
At least, it turned out, until the next day. On March 11, the hangover from the party set in—along with a devastating slide. Investors grew scared whether the companies would deliver. By the end of March, the NASDAQ was down to $100 billion. And an antitrust ruling against Microsoft only made this worse. By early April, the market had lost more than $1 trillion. One J.P. Morgan analyst told Time magazine that many companies were losing between $10 and $30 million a quarter. “The reality is that many of these companies are simply running out of cash,” the analyst said. By year’s end, he went on, “a majority of the owners will be forced to turn out their lights and go home.”
But not everyone in the dot-com world was living in the dark. The underworld of the web, in fact, was booming. While sites such as Amazon had yet to turn a profit, porn was now generating $1 billion in annual sales internationally. The technological innovations were fueling a boom in cable and DirecTV distribution as well, bringing the total industry of adult content to $10 billion. Adult sites were pulling in a whopping 35 percent of all the unique visitors online around the world.
But it wasn’t just the Stephen Cohens of the world who were cashing in anymore. The biggest corporations in the country—AT&T, Time Warner, General Motors, EchoStar, Liberty Media, Marriott International, Hilton, On Command, LodgeNet Entertainment, or News Corporation—were making a killing. But, as one AT&T executive told The New York Times, the last thing they would do was talk about it publicly. “How can we?” the executive said, on the condition of anonymity. “It’s the crazy aunt in the attic. Everyone knows she’s there, but you can’t say anything about it.”
If there was one thing people were still buying online, it was porn. More people visited porn sites than government or sports pages. Roughly one in four regular internet users, or 21 million Americans, cruised some of the sixty thousand porn sites online. A
ccording to a Nielsen study, porn sites were getting fifty million hits a day. With this kind of success, many of the biggest online porn providers were in business with the largest telecoms around. New Frontier, a publicly traded company with thousands of porn sites, provided sex videos to the largest cable and satellite companies.
AT&T had its Hot Network porn channel—subscribed to by 20 percent of its customers—along with a separate company that sold porn videos to more than a million hotel rooms. As the Times pointed out, the General Motors Corporation was selling more porn videos than Larry Flynt, with 8.7 million Americans spending more than $200 million a year in pay-per-view porn on DirecTV, a GM subsidiary. EchoStar Communications Corporation, the second biggest satellite provider, backed largely by magnate Rupert Murdoch, outperformed Playboy for sexual content. “Despite the fact that this material isn’t marketed, revenue-wise, it’s one of our biggest moneymakers,” said Peggy Simons of TCI Cable, owned by AT&T. Her comment came, however, only during a court hearing.
For the adult industry, it was only the beginning. “These companies like AT&T, they’re thinking ahead to a time, perhaps in 10 years, when 50 million Americans will have broadband capability and all their television and Internet will be interactive through one big box,” Bryn Pryor, technology editor for Adult Video News, an industry trade magazine, told the Times. “But it’s not just technology that made the big boys get into it,” he went on. “This just happens to be a business where you can’t lose money.”
* * *
On November 27, 2000, the morning of the hearing that awarded Sex.com to Kremen, a stout, balding man walked into the cool lobby of the Wells Fargo bank in Anaheim Hills, and transferred $1.2 million out of his bank account. Cohen wasn’t taking any chances. If Kremen was going to win the domain back, then the last thing he was going to do was make it easy for him to get any of his money. As Cohen had told Brownfield, “I’m never going to give that son of a bitch a dime. He didn’t earn this thing. I have built this business.”
But Cohen’s protests were to no avail in the weeks following the awarding of Sex.com to Kremen. The business was no longer his. It was in Kremen’s hands, and Cohen went into panic mode, knowing that the rest of his empire—everything he built—was sure to follow. Cohen filed an appeal, as expected, in federal court, and refused to pay the $25 million he’d been ordered to put up until damages were assessed. Wagstaffe pushed for the accounting of his Sex.com earnings. “I have a simple question,” said Wagstaffe, suggesting that Cohen was hiding his cash. “Where is the money?”
“We’re not hiding anything,” Cohen’s attorney, Bob Dorband, said. “The defendants do not have $25 million to deposit into the court.”
As the lawyers battled, Brownfield tried to reason with Cohen. Instead of fighting Kremen, why not find some way to collaborate. Sure, they had their differences, but they also had a lot in common, Brownfield thought: a love of money, a knack for business, plus traits that complemented each other. “You know what? You two guys need to get your heads together,” he said. “Steve, you’ve got the knowledge, but he’s got the common sense to run a business because he’s got the education. I mean, here’s a developing business, you guys were the first ones in! Together, you guys could just own this industry and sell it, you know, or do whatever you want to do with it. You can own this business.”
For a moment, Brownfield caught a glimmer in Cohen’s eyes, like he was actually considering it. But the moment passed. “I can’t work with that son of a bitch,” Cohen said. And here was the even crazier thing, Brownfield thought: they were still talking to each other, Cohen and Kremen, almost every day on the phone. Cohen would call him at all hours of the day and night, taunting him, prodding him, while Kremen just sat there shooting the shit. “I’m going to visit my money over in Luxembourg,” Cohen might say, only to hear Kremen flush a toilet in the background in response, which would only infuriate Cohen more.
“You don’t know anything about this business!” he’d say. “You want to be in the sex business and you don’t know anything about it.” Then he’d slam down the phone. “He’d hang up and you could see in his demeanor that he was upset or he was angry,” Brownfield later recalled. “Steve didn’t want to lose that business.”
So instead of giving in, he did the same thing that Kremen had done all along: he dug in his heels, and schemed how he could fight back. First, there was his money, the millions, which he had moved offshore. But then there was the gem: his house, the home for Rosey and the kids, in Rancho Santa Fe. It was more than a house, it was a home, it represented everything his parents said he would never amount to. And if Kremen was coming for it, then he was going to have to make sure it would never fall into his hands—one way or another. So he called up Brownfield, and told him there was something he needed him to do.
* * *
When CNN asked Kremen his plan now that he owned the biggest porn site online, he shrugged his shoulders. “I still need to figure out exactly what’s going on with it,” he said. But there was one thing he was sure about, though: “I don’t really want it to be a porno site.”
As impractical as it sounded to the rest of the industry, it was true. The man with the biggest name in the biggest industry online wanted to be known as Mr. Clean. He made this clear during his first couple months after winning back the site, as he made the rounds among the biggest players in the business. He traveled North America with his self-described consigliere, Carreon, getting the lay of the online land of laying.
They started with Yishai Hibari, the young Israeli ad man who’d helped Cohen build Sex.com into an empire. In exchange for a 15 percent cut of his ad sales, Hibari agreed to work with Kremen, and the two met, along with Carreon, one afternoon at Hibari’s new offices in midtown Manhattan. Bald, confident, and stylish, in a slick black suit, Hibari held court in his conference room, flanked by two assistants who, he pointed out, had formerly worked in Israeli intelligence, the Mossad.
On a large screen, Hibari rattled off numbers as banner ads scrolled down before their eyes. Hibari had been in the business long enough that the images of money shots and open mouths didn’t seem to register; it could have just been kitchen cabinets and lawnmowers on-screen. Cohen had a certain genius, Hibari went on: keep the site design simple, keep it explicit, and keep it profitable. The homepage had now been winnowed down to six high-priced ads going for $50,000 a pop, alongside a row of links—to sites such as Big Beautiful Women and Cheerleader Gang Bangs—for around $7,500 each.
Because Sex.com was such prime property, it attracted not only huge waves of newbies looking for porn, but ones naive enough to subscribe to sites—even when they could likely find free porn themselves if they knew where to look. According to the stats, the visitors were clicking on the ads at an astonishing rate: more than two hundred clicks per second, and for each site. In the online ad business, getting just one of these people clicking an ad to become a member was considered a success. Sex.com was averaging four times that rate. Kremen would get a percentage of every subscription, just as Cohen had all along. Even better, Sex.com already had the biggest whales in the business, such as Levi and Warshavsky, among their clients. The money came in wire transfers, paid in full in advance for the ads—in Cohen’s case, making upward of $1 million a month, or more. And with estimates of online porn projected to become a $4 billion industry, Kremen’s profits were about to explode. Cohen had, in other words, set the table; now all Kremen had to do was sit back and cash in. As one pornmaster told them, “Say whatever the fuck you want about Steve Cohen, he knew how to make money.”
But as Kremen took it all in, he could feel his head throbbing—and not just from the gin and tonics the night before. He didn’t want to be in the business of sex, he just wanted to be in business. It felt like the hangover of his battle with Cohen was finally catching up with him. All these months, he’d been so obsessed with winning that he hadn’t fully considered what he’d do if he actually won. And now, here he was, de
aling in online porn, meeting with ex-Mossad, as the most hard-core images he could imagine stared down from the screen before him. Sure, tons of young guys would kill to be in his position, but so what, he wasn’t them. All he could ask himself was: What would his mother think?
And so, his answer to Hibari was simple and swift. He would keep the same business model as Cohen, but he wanted to clean up the site—effective immediately. Within thirty days, he told Hibari, he would no longer accept any banner ads that showed actual sex. He also wanted to strip any references to anything potentially against the law, such as bestiality or incest. And any models on the site had to be clearly of legal age.
After the meeting, Hibari pulled Carreon aside. Kremen seemed well-intentioned but, as another porn sales guy put it after hearing his plan to sanitize the site, “get real, this is pornography.” Kremen would destroy the empire that Cohen had so deftly built. Why not get out of the business before he got in? Hibari told Carreon he knew a rich guy who was loaded, and about to buy a phone company in the Midwest from his porn profits. They would buy Sex.com right now for $15 million cash. But when Carreon ran the offer by Kremen, Kremen scoffed. No matter how squeamish he felt about the porn industry, he hadn’t worked this hard to get Sex.com back just to give it away—no matter what the price.
From New York, they went to Toronto, to meet the moguls behind two of the other biggest sex and dating sites, Date.com and Orgasm.com (which boasted the slogan, “keeping Kleenex in business”). Kremen showed up in a stained sweatshirt and loose jeans, a thin goatee on his face; while Carreon sat beside him like a roadie: long-haired, blue jeans, motorcycle jacket.
The Players Ball Page 15
