The Bizarre Story of the Sex.com Heist

data-breachIn 1983, Paul Mockapetris proposed a distributed database of internet name and address pairs, now known as the Domain Name System (DNS).  This is essentially a distributed “phone book” linking a domain’s name to its address, allowing you to type in something like todayifoundout.com instead of the IP address of the website.  The distributed version of this system allowed for a decentralized approach to this “phone book.” Previous to this, a central HOSTS.TXT file was maintained at Stanford Research Institute that then could be downloaded and used by other systems.  Even by 1983, this was becoming a problem to maintain, which ultimately led to the Domain Name System.

In these Wild West days of the internet when domain names first began to be registered for commercial use, with symbolics.com kicking things off when it was registered to Symbolics Computer Corp. on March 15, 1985, few people had any idea how big the internet was going to be in the coming decades. As a result, the value of domain names was underestimated to an almost comical degree. Examples of domain names that were snapped up in the halcyon days of the early 1990s by savvy internet denizens include Beer.com, (sold in 2004 for $7 million), Hotel.com (sold in 2011 for $11 million) and the subject of today’s article- Sex.com.

This particular domain was registered by one Gary Kremen for free thanks to the National Science Foundation footing the bill at the time. While Kremen has run or invested in a myriad of successful businesses since, he is perhaps best known today as the creator of Match.com, which presently brings in a few hundred million dollars per year. Although, funny enough, owing to his removal as CEO by an amazingly inept board who likewise demonstrated a spectacular lack of vision and undervaluation of the website, Match.com was sold for a mere $7 million in 1998 (about $10.7 million in today’s dollars), with Kremen only getting about $50,000 of that for his idea and effort in building the site. (A little over a year later it sold again for about $50 million with little changes to the site in the interim, with Kremen noting of the previous sale that he vehemently argued against, “Talk about mispricing.”)

But we’re not here to talk about Match.com. Rewinding back to 1994, Kremen, a holder of bachelor’s degrees in computer science and another in electrical engineering, as well as an MBA from Stanford Business School, saw great potential in online businesses, and thus had made a practice of snapping up domains that he thought would work great for various e-businesses he had ideas for.

So when he noticed sex.com was available, he nabbed it via the registrar Internic, which was later acquired by Network Solutions. Of course, at the time, himself having long struggled to find a steady girlfriend, Kremen was busy attempting to give the world of dating a major upgrade via introducing the aforementioned online dating service, match.com, so set aside sex.com to do something with later.

Important here is that when Kremen did register sex.com, while he named his non-incorporated company Online Classifieds as the owner of the domain, he put himself as the sole point of contact. Seemingly, this should have made it pretty difficult for someone to steal sex.com from him, but at the time, as noted, few people had any real notion that domains should have value, even, as it turns out, Network Solutions. In fact, at least according to their later legal argument in a case with Kremen, they stated they considered domains more like phone numbers than property someone owned.

Enter Stephen Cohen. Besides supposedly having a Juris Doctor degree from Southern California Law School, over the course of his life Cohen’s been involved in a shockingly high number of schemes. For example, according to a lawyer friend of his, one Roger Agajanian, Cohen even once successfully impersonating a judge in Colorado for several years, including, to quote, “[letting] people off all the time” while acting as a judge.

While he was arrested countless times over the years for his many exploits, he was particularly adept at not only staying out of jail, but also weaseling out of actually coughing up any money to people he’d defrauded and creditors via, according to Agajanian, “playing procedural games” and hiding acquired assets until those he’d conned just gave up trying to get anything out of him.

Fast-forwarding a bit to the late 1980s, and an Orange Country sheriff, Gary Jones, had been trying to catch Cohen at something for years, ever since discovering he’d been stealing expensive cars from people via pretending to impound them when the people fell behind on payments, as well as operating a phony law firm. During the ordeal, Cohen even allegedly had the audacity to threaten Sheriff Jones’ family if he didn’t back off, which, to quote Jones, “made it personal, so every time that guy sneezed, I knew.”

But even under such close scrutiny, he still seemingly had little trouble keeping up his various illegal activities. But in 1991, the master conman finally had a stint in prison, at the Federal Correctional Institution, Lompoc, in California, for his involvement in a bankruptcy fraud scheme, where, among other duplicitous activities, he brazenly posed as a variety of different lawyers in the case.

We could go on for pages on the various fascinating activities Cohen got up to over the decades as he mastered the craft of being not only a conman but also someone who seemingly could give the world’s top lawyers a lesson in how to exploit the U.S. legal system to get away with almost anything, but today we’re just going to focus on one of his little escapades- the sex.com heist.

On February 1, 1995, Cohen was released from prison. Seemingly not long after, he set his sites on acquiring sex.com. Rather than make an offer to the rightful owner, Kremen, to buy it or even create a partnership of some sort (which actually might have really worked out for both Cohen and Kremen, as it turns out), he seems to have decided he’d rather just steal it.

To do so, he settled on an ingeniously simple plan, which he put into motion on October 15, 1995.

Cohen began by forging a letter from the president of Kremen’s Online Classifieds, Sharon Dimmick. Using a fake, seemingly official looking letterhead, in the letter Dimmick, on behalf of Online Classifieds, noted that Kremen had been fired and that they were “relinquishing” all rights to Sex.com to Cohen. Moreover, in the letter, it stated that:

“Because we do not have a direct connection to the internet, we request that you notify the internet registration {sic} on our behalf, to delete our domain name sex.com. Further, we have no objections to your use of the domain name sexcom and this letter shall serve as our authorization to the internet registration to transfer sex.com to your corporation.”

Of course, Sharon Dimmick didn’t exist, but that didn’t matter here. When Cohen presented the letter to Network Solutions, the latter, with remarkable credulity (particularly given that a company with “online” in their name wouldn’t have access to the internet, even in 1995), transferred the domain to Cohen’s company, Sporting Houses Management, just two days later on October 17th, without ever bothering to even try to contact the one person who actually was listed as a contact and had registered the domain in the first place- Gary Kremen.

Kremen would later note that on October 18, “I woke up… and it was gone… It’s like someone forging the title to your house and then taking it over.”

Naturally, he contacted Network Solutions to ask what had happened and to get the domain back, noting that he’d never authorized any such transfer, but they claimed they had an internal policy to not get involved in any dispute about ownership of domains and refused to transfer it back.

(Presumably he’d have had much better luck if he just wrote them a letter on Cohen’s behalf telling them to transfer the domain back…)

Of course, Cohen wasn’t about to give up his new asset, leaving Kremen no alternative but to sue and try to get the courts to make him. Beyond initially not being sure if he wanted to so publicly associate himself with online porn via suing Cohen for sex.com back, the other problem was that Kremen knew the legal battle would be extremely expensive and he didn’t have the money at the time to pursue the case. So he put it on the backburner for a while.

On top of this, when Kremen later began seriously looking into suing, he was contacted by a lawyer from the Patent and Trademark Office. Said lawyer advised him that suing Cohen would be a pointless act because Cohen had trademarked sex.com, retroactive to 1979 when Cohen had first started using the term, meaning that thanks to that trademark, there was almost no chance Kremen would win, even if he had been the one who’d originally registered sex.com.

If you’re now wondering how Cohen could have been using sex.com all the way back in the late 1970s, he claimed on his trademark application that he had been running an electronic bulletin board called The French Connection back in 1979, which was, to quote, a board for “swingers, nudist camps, and alternative lifestyles.” Essentially a hookup electronic bulletin board and where sex.com, supposedly short for Sex Communications, was being used by Cohen.

Cohen would later claim, “It was a very, very lucrative business. It’s what became Sex.com today.”

It is known that Cohen really did once run such an electronic bulletin board service and later a real-world swingers meeting place in Orange County in the late 1980s called “The Club”. This is definitively known, among other reasons, because in 1990 Cohen was arrested for operating such a sex club in a residential zone, though was later somehow found not guilty by a jury. As to whether “sex.com” ever had anything to do with any of this, it’s generally thought unlikely.

Whatever the case, according to Kremen, while Cohen really did file for such a trademark once he acquired sex.com, it would later turn out that the Patent and Trademark Office lawyer Kremen had been discussing the matter with and who for a time successfully dissuaded him from attempting the lawsuit was none other than the conman who’d stolen sex.com in the first place- Stephen Cohen.

In any event, Kremen did not initial pursue legal action and in the interim Cohen attempted to create the “Caesar’s Palace of brothels” and even a fantasy sex island with sex.com being the web presence for these business ideas. But all such plans fell through, and he simply began offering subscription porn on sex.com, as well as running very lucrative ads as well.

On top of that, even though he’d not actually been granted the trademark for sex.com, he nonetheless began suing everyone using related terms in their brands and the like.  As Cohen put it in an interview, “We’ve got lawsuits filed left and right for trademark infringement. We’re constantly filing new lawsuits. Constantly. We have teams of lawyers at Ocean Fund who do nothing but file lawsuits.”

(This seemingly actually was lucrative in its own right, with some website owners at the time simply choosing to take a deal instead of pay all the legal fees needed to take the matter to court.)

Speaking of Ocean Fund, around this same time, Cohen sold sex.com to a company called Sand Man Internacional in Mexico, a subsidiary of Ocean Fund International, based in the British Virgin Islands. Naturally, though the paper trail is surprisingly difficult to follow, presumably by design, it would appear this was all just a way for Cohen to move ownership of the domain to an entity, which he owned, based outside of the United States.

However, Cohen’s lawsuits here would be the beginning of his undoing in the sex.com heist. You see, while Kremen couldn’t afford to go after Cohen himself, Cohen was making himself a lot of enemies in the world of online porn- some of which agreed to team up with Kremen to cover legal costs of getting the sex.com domain taken away from Cohen.

And so it was that in the summer of 1998, Kremen finally decided to sue to get the domain back.

Soon enough, however, many of the porn moguls that agreed to go into the battle with Kremen abandoned the cause, but one lawyer, Charles Carreon, decided to stick it out with Kremen, despite Kremen’s lack of ability to pay.

Later, when Cohen sued Kremen for defamation, Carreon had the bright idea to leverage certain terms in Kremen’s home owners insurance plan with State Farm to obligate them to defend Kremen in the defamation case. With State Farm’s large team of crack lawyers now on his side, the runaround Cohen was giving the court system began to fall apart.

Around the same time, Kremen stated he was able to “liquidate the dot-com stock I had and put it all on red to beat [Cohen]”.

At this point, it was personal, no doubt partially fueled by the fact that apparently Cohen had a fun little habit of randomly calling Kremen to taunt him or otherwise just mess with him in a variety of ways.

Cohen didn’t help himself later when he was caught on camera posing as one of Kremen’s lawyers and stealing 113 pages of his own bank records that Kremen’s legal team had uncovered, which, by the way, apparently included definitive records of him transferring some $25 million made from sex.com offshore- and this was just a portion of what he probably actually made.

When this theft was revealed, for the first time, the court system started considering that maybe the smart looking, smooth talking, Network Solutions backed Cohen wasn’t the upstanding businessman he appeared to be and the eccentric, socially awkward Kremen, who looked pretty much as you’d expect a stereotypical middle aged computer nerd in the 1990s to look, might actually not be crazy.

But while this court battle was being waged, as you might have guessed from that $25 million figure previously stated, Cohen was making the most of his stolen property- at its peak, according to Cohen- so take this with a huge grain of salt- earnings were around $225 million per year thanks to having about 9 million subscribers paying $25 a pop, plus additional revenues from advertising, which he claimed brought in about $1 million per month.

As Cohen once bragged in an interview, “Let me make it real simple for you. Our audience is not America. It’s the whole world. There’s only one word in the whole world that everyone understands – sex. You type the word ‘sex,’ you come to Sex.com.”

Of course, Cohen could have been making up these fantastical sums, but based on estimated traffic at the time, which included somewhere in the vicinity of 140 to 700 million page views per month at its peak, and revenues that Kremen would later receive in ads when he got sex.com back, it’s generally thought Cohen made around $100 million from sex.com in the five years he controlled the domain, though given his absolute refusal to share such financial records with the courts, even when ordered, it’s difficult to say for sure.

Whatever his real earnings, being well versed in the law and able to afford the best lawyers to boot, Cohen successfully dragged out the case for two years, making a variety of arguments such as that because Kremen’s Online Classifieds was not an officially registered company at the time he listed it as such when acquiring sex.com, it could not have possibly ever owned sex.com. One of Cohen’s lawyer’s added to this, “Thus, Online Classifieds’ allegation that it was the owner of the Sex.com URL has no basis in fact and is tantamount to perpetrating a fraud.”

Yes, they brazenly accused Kremen of fraud in the case…

Finally, in November of 2000, the courts ordered that the ownership of sex.com should revert back to Kremen and that Cohen owed Kremen a total of $40 million of the then estimated $100 million in revenue Cohen had supposedly made in the five years he had possessed sex.com. Further, the court added in an additional $25 million punitive damage award, bringing the total owed to Kremen to $65 million.

Naturally, Cohen had no interest in paying a dime to Kremen.

Although the district court “froze” Cohen’s known assets (read: issued an order on paper), this seems to have posed little impediment to Cohen who had seemingly already planned ahead for such a contingency. Beyond leaving the country, he’d already wired everything liquid to a variety of accounts offshore and even stripped his real estate, which would soon be awarded to Kremen after another extended court battle, of everything of value (including doors and toilets). Later the mansion was vandalized directly before Kremen was to take possession of it, with it generally thought Cohen was behind that.

As to why Cohen officially claimed he could not pay anything to Kremen, despite having made a boatload of money off of sex.com, it would appear directly after losing the court battle all his companies had suddenly gone completely bankrupt at the same time his own personal finances also mysteriously went to zero…

Although the court ordered Cohen to return to the U.S. and show cause for his apparent contempt, he ignored the order and remained out of the country.

He did, however, briefly get arrested in Mexico for trying to smuggle some money back into America, but would state after being caught that he’d simply been trying to pay back Kremen as the court had ordered him too before authorities got in the way…

The trial court then declared him a fugitive from justice and an arrest warrant was issued, but it couldn’t be served.

About this time, Kremen himself posted a “Wanted” poster with a $50,000 reward on sex.com, which only played into Cohen’s hands. Cohen then claimed he not only couldn’t return to the United States, but that the arrest warrant should be rescinded because between that and the reward for his capture, the authorities and bounty hunters outside of his Mexico residence were allegedly engaging in gunfights to see who would apprehend him – which posed a threat to his and other lives.

The trial court was nonplussed and refused his request.

Cohen managed to keep himself out of the reach of U.S. authorities for about five years, despite, according to Kremen, regularly still calling to taunt him over the sex.com heist and even once offering Kremen shares in the controversial file sharing system Earthstation 5 Cohen helped found. Naturally, Kremen had no interest in taking stock in one of Cohen’s companies over actual money.

Things changed when Cohen was arrested in 2005 in Mexico for violating immigration laws. You see, Kremen had discovered that Cohen had divorced his wife, Rosa, which meant he needed a different visa to stay there. Naturally, Kremen made this fact known to U.S. Marshals, once of which chose to pursue the matter, resulting in Cohen being arrested when he attempted to acquire said correct visa in person. You see, when standing in the immigration office, Cohen didn’t yet have the visa, so was officially in violation of Mexican immigration laws and in a location authorities knew he’d show up at.

And so it was that he was shipped back to the United States where he spent a surprisingly short time in prison before being released on December 5, 2006.

So Kremen finally got some of that money, right?

Nope, Cohen claimed poverty and backed it up with documentation showing he had no assets or money to speak of. Of course, sifting through the massive paper trail of at least 12 companies around the world and various individuals, including family members, Cohen seems to have used to hide some pretty massive sums of money after his sex.com escapade, the courts weren’t, and aren’t, buying it.

At least as recently as 2011, which is the last court rulings we could find connected to the case, the matter was still ongoing, with some of the bank accounts of said people closely connected to Cohen, and containing some rather enormous sums of money, having been frozen.

In terms of whether Kremen would actually ever get access to the many millions of dollars in said frozen accounts, let alone the millions more Cohen is thought to have stashed around in unknown accounts, this is still up in the air. But Kremen states he told Cohen during one of the conversations he’s had with him when Cohen calls to taunt, “I tell him it’s going to happen with or without lube, so lie down and get it over with…”

To date, however, he’s still waiting on the now over $80 million owed here including interest.

But don’t feel too bad for Kremen. You see, beyond eventually getting to run his own version of sex.com, making a cool half a million dollars per month from it before the dot.com bubble burst, and later selling it for $14 million in 2006 ($17.5 million today), there was still the matter of Network Solutions who had transferred ownership of his very valuable property without ever notifying him in any way they were doing this.

Thus, he set his sites on Network Solutions and its parent company, VeriSign, who acquired Network Solutions for a whopping $21 billion in 2000.

He alleged four causes of action in this particular law suit, including breach of contract and conversion (taking someone’s property). The trial court rejected the breach of contract claims because Kremen never paid for the domain name registration (again, back then you could register for free thanks to the National Science Foundation), so there was no “consideration,” that is, something of value Kremen paid in exchange for the domain name. This was upheld on appeal.

Network Solutions also argued, with some success initially, that it was akin to a phone company, with domain names essentially being phone numbers. As a lawyer for Network Solutions, Phil Sbarbaro, stated, “A domain name is not property, it’s a service.”

However, the trial court’s rejection of the conversion claim was overturned by the Court of Appeals. The Ninth Circuit noted that while traditionally the tort of conversion only applied to tangible items (like a car), but not intangible things (like information or the right to enforce a license or registration), this was an old-fashioned view of property and its value; accordingly, the appellate court reversed the trial court’s rejection and returned the claim, ruling that Network Solutions was indeed liable for damages here owing to having transferred ownership of property without any authorization.

This was a landmark case as, from a legal perspective, many of the laws pertaining to real property now applied to domains, finally affording domain owners some concrete legal protections concerning their property.

Within a year, Kremen and VeriSign settled the claim, reportedly for an amount in excess of $15 million ($20.5 million today).

Then, of course, there was the matter of Kremen’s sale of jobs.com, housing.com, autos.com, sex.net, computer.com, a sale of a patent he held for dynamic web pages for a cool $1.25 million, and money made from several companies he created and sold in the last few decades. On top of that, Cohen’s former 8,900 square foot mansion in Rancho Sante Fe that was awarded to Kremen, which he lived in for a time, sold for $4 million in 2009.

He also has variously been awarded other bits and pieces of Cohen’s assets when they can be tracked down and after lengthy legal battles in which Cohen does everything possible to drag things out as long as he can. On that note, Kremen has stated he’s not yet gotten enough back in said liquid assets to pay his legal fees (in excess of $5 million) throughout the saga.

More recently, Kremen’s taken to investing in dozens of renewable energy startups.  So ya, financially, he’s doing alright despite not having the $65 million plus interest Cohen owes him.

By all accounts the two still semi-regularly converse though, generally in the form of taunting one another over the latest events in their joined, sordid saga.

If you liked this article, you might also enjoy our new popular podcast, The BrainFood Show (iTunes, Spotify, Google Play Music, Feed), as well as:

Bonus Facts:

  • Money isn’t everything and despite his enormous success over the years, Kremen was still in search of love well over a decade after getting fed up with 900 number dating services and deciding to found Match.com to solve the problem for people such as himself. As you might imagine, as a very rich bachelor in Southern California, particularly one who used to own and run a quasi-porn site in sex.com, he had little trouble finding women wanting to spend as much time with him as he liked. But by his mid 40s, fed up with that lifestyle, and instead wanting someone who’d love him for him and not the size of his wallet, he offered his friends a deal- if one of them could find him a wife, he’d give said finder and family an all expense paid trip to Hawaii. This actually worked and he was introduced to one Dr. Petia Atanassova, who became Petia Kremen when they got married in 2008… Unfortunately it would appear according to court records that on January 29, 2014, the couple filed for divorce, though the case is still ongoing over four years later… But there too, it’s not all bad news, he did have two great kids in the interim. And speaking of kids, while he might not have made much money off of Match.com, thanks to it, Kremen has boasted he was able to help make over a million babies… indirectly of course.
  • As previously noted, Companies in the early 1990s were often so ignorant of the internet as a whole, let alone its potential as a tool for advertising, sales and PR, that in the latter days of 1993 about half of all Fortune 500 companies had failed to even register their own name online.  Companies started to cotton on to the value of domain names and the internet in the latter days of 1994 when a writer for Wired magazine called Joshua Quittner registered McDonalds.com and, in a fascinating time capsule of an article, jokingly mentioned he might try to sell McDonalds.com to Burger King. Before registering the domain, Quittner repeatedly reached out to McDonald’s to politely inform them that the domain was available and they needed to grab it quickly before someone else did. At Quittner’s urging, Jane Hulbert of McDonald’s media relations discussed the matter with higher ups in the company. The result? Hulbert stated her superiors’ reaction to her queries about McDonald’s plans concerning the internet and the McDonald’s domain name was, “No one seems to know anything about [the internet]…” Quittner ultimately decided to just register McDonalds.com himself, even though it wasn’t yet clear from a legal standpoint if this constituted trademark infringement or not, something that was at the time still being fleshed out in court. (He did ultimately give the domain to McDonald’s after the company agreed to provide free high-speed internet to a public school in Brooklyn.) Quittner likewise reached out to Burger King encouraging them to register BurgerKing.com before someone else did. He stated Burger King’s initial response when he mentioned the internet was, “[Is that] some kind of information thing, like Prodigy?”
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