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26 Mar 2001
Tangled Tale of the Pilfered Porn Site
Joseph Menn, Los Angeles Times

Stephen Michael Cohen is one of the most successful entrepreneurs of the Internet Age, having raked in an estimated $43 million in profit from advertising fees and monthly memberships sold through the pornography site http://www.sex.com.

What makes the feat more impressive is that Cohen, a multiple felon who once advertised swingers' sex parties in Orange County, made his money by swiping the Sex.com site with a forged letter to the agency that registers Internet names.

Within days, U.S. District Judge James Ware in San Jose is expected to order Cohen to disgorge all his earnings from Sex.com. This month, Ware ordered Cohen arrested on a contempt of court charge in the civil case.

Neither of those rulings are likely to faze Cohen--who lives in a Tijuana mansion--as he and his millions, which are stashed in offshore bank accounts, are out of the reach of the U.S. justice system.

Cohen set up Sex.com as a sex supermarket, advertising referrals to nude pictures of celebrities, teenage sex videos and other hard- core porn offerings. The site became so popular that Cohen grossed hundreds of millions in sales in five years, according to court records.

Cohen's stint running Sex.com ended in November, when Ware returned the Web address to Gary Kremen, the San Francisco engineer who registered it in 1994.

"I expect to get my hands on nothing," Kremen said of his long legal battle. "This isn't about business anymore. It's the principle."

The tale, which includes a bizarre multibillion-dollar takeover bid for Caesars Palace and a heist of records from a Kinko's store, stems from the Web's Wild West atmosphere and the fact that sex is a great business on the Internet.

Kremen has met Cohen only once, in San Diego when they discussed a possible legal settlement last year. Over steaks and wine, Kremen found a lot to like in the now-fugitive.

"Cohen is a brilliant businessman," Kremen said. "He's so convincing that, after 20 minutes of talking to him, he had me believing that I stole it from him."

Both men were quick to see the Internet's potential as an anonymous meeting place for people seeking romance and sex.

For two decades Cohen had various business endeavors, with occasional run-ins with the law.

Cohen's convictions include a 1977 suspended sentence for forgery, grand theft and impersonation. In the 1980s, Cohen ran sex-related computer bulletin boards under the name the French Connection.

But he won local notoriety for throwing sex parties for fee- paying swingers in a tony Tustin neighborhood. After residents complained, Orange County authorities went undercover to investigate and prosecuted Cohen for misdemeanor zoning violations.

The 1990 case ended in a mistrial when authorities failed to prove Cohen was running a business instead of, as he claimed, a nonprofit club just covering expenses.

Two years later Cohen engineered a scheme to hide assets of an acquaintance who filed for bankruptcy, and he lied to a judge by claiming to be a lawyer handling the associate's case. Cohen was convicted of forgery and fraud and sentenced to 46 months in federal prison.

"Might he have character flaws? Sure," Cohen's attorney Robert Dorband said of his client. "But I don't think he's got an evil bone in his body." Cohen didn't respond to requests for an interview.

Cohen Took Control of Site in 1995

When Cohen emerged from the penitentiary at Lompoc in 1995, the Internet was gathering steam. He inquired about the status of Sex.com and found it registered to Kremen's firm, Online Classifieds Inc.

According to Cohen's testimony, he drafted a letter on fake Online Classifieds stationery, stating that Kremen had been fired from that firm and transferring ownership of the domain name to him.

Then, Cohen said, he and a friend drove to the residence where they believed Sharyn Dimmick, a former housemate of Kremen's, lived. Cohen's friend returned with the letter signed by a "Sharon Dimmick" on behalf of Online Classifieds.

Among the problems with Cohen's story: Dimmick's first name is misspelled on the document as Sharon; she was not an employee of Kremen's company; and she no longer lived at that address. Dimmick testified that she had never heard of Cohen.

Nevertheless, Cohen sent the letter to Network Solutions Inc., which registers Internet addresses, which turned over control of the Sex.com site to him in October 1995.

As for Kremen, he had an early interest in computers. He earned a Stanford business degree, then founded a firm that sold anti-virus software programs.

His biggest hit was a system for online classified advertising that became the popular Internet dating service Match.com.

In 1994, a year before online bookseller Amazon.com opened, Kremen registered several Internet domain names, including Sex.com. Back then registrations were freely doled out under a National Science Foundation program.

"I wasn't exactly sure what I was going to do with it," said Kremen, 37, who now works at a small San Francisco venture capital firm. "Maybe a more adult version of Match.com."

But Kremen let Sex.com languish before Cohen seized the name and set up a business. When Kremen contacted Network Solutions, the firm threw up its hands and told Kremen to try his luck in court.

In 1998 Kremen scraped together enough money to sue Cohen. But only after other companies that Kremen invested in began to pay off was he able to turn up the heat with higher-priced lawyers.

By then, Cohen was flush with millions from Sex.com, and he was able to fight back with a vengeance.

Cohen filed a defamation suit against Kremen, stalled requests for documents and moved his money to companies in Mexico and the British Virgin Islands, according to records in the 20-volume court case.

"As soon as we get to a bank account, it's moved offshore," Kremen's attorney Pam Urueta said. "It's like trying to nail a jellyfish to a wall."

Cohen's boldest stunt may have come in October, after bank records were delivered to a Kinko's store for copying and mailing to Kremen's lawyers.

According to Chula Vista police, someone matching Cohen's description walked in, said there had been a change of plans, and walked out with the documents.

This month, Ware ruled that Cohen, who failed to post a $25- million bond, had a "demonstrated history of transferring assets and evading the authority of this court."

How much money Sex.com has generated is one of the few issues left for the judge to resolve.

Roles of Cohen, Kremen Reversed

Cohen's Virgin Islands-based Ocean Fund International once announced that Sex.com had a profit of $95.5 million in a single quarter.

And another news release by Cohen's firm proclaimed that the owner of the "world's largest pornographic site" was making a $3.6- billion, all-cash offer for eight Caesars Palace casinos.

Wall Street dismissed the offer as laughable.

Kremen said he believes Cohen's testimony that he turned down $48 million for Sex.com, a sum that would dwarf the record $7.5 million paid in 1999 for the domain name http://www.business.com. Kremen's experts, using partial records, put Sex.com's five-year profit at $43 million, more than half of what EBay has earned to date.

Cohen's attorney Dorband conceded that he will lose the current case but promised to appeal.

In the meantime, the roles of Kremen and Cohen have reversed. Cohen, the longtime pornographer, says he is working on building a fiber-optic Internet hub in Tijuana.

And engineer Kremen is enjoying the financial rewards of Sex.com, as the hard-core porn site brings in $400,000 monthly from advertising.

"It is what it is," shrugs Kremen, noting that a large percentage of Web profits derive from adult entertainment. "Porn is the savior of the Net. It's the crazy granny in the closet that no one talks about."

 

 

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