According to the FTC, Direct Revenue enticed consumers with free content like games, icons and screensavers, but did not adequately inform those customers that by downloading and installing those packages, they were also installing software that would monitor their behavior and serve them targeted popup ads.

Under the terms of the settlement, Direct Revenue will not be able to send software to customers without their consent and must provide an easy way to remove that software.

In November 2006, the FTC cracked down on a number of adware distributors. Adware company Zango settled for $3 million.

According to a company statement, Direct Revenue is happy to pay $1.5 million. “This agreement is a major step forward in resolving the legal and regulatory issues facing Direct Revenue,” said Direct Revenue council Stuart Friedel.

The FTC Commission approved the settlement, with a vote of four to one.

FTC commissioner Jon Leibowitz was unhappy with the settlement and issued his own statement saying that “the $1.5 million … is a disappointment because it apparently leaves DirectRevenue’s owners lining their pockets with more than $20 million from a business model based on deceit.”

Direct Revenue blames third-party distributors for the charges and says it had stopped distributing software through affiliates in 2005 and through third parties in 2006.

Walnut, an ad distributor for Yahoo, apparently supplied the ad space to Direct Revenue while the revenue was derived through Overture’s CPC feed. The adware company’s links were displayed in the place of a “404 file not found” error page when a user mistyped a URL.

Although Spitzer has not accused Yahoo of any wrongdoing, the search site continues to deny authorization of any business practices with Direct Revenue. “Yahoo!/Overture has never had a distribution agreement with Direct Revenue, nor have we ever paid Direct Revenue for services,” a Yahoo spokesperson told MediaPost. “They have approached us on several occasions, and we have repeatedly declined their proposals.”

The New York Attorney General’s lawsuit was filed last week. In a related development, a number of other documents attached to Spitzer’s suit are now serving to illustrate the frustration several of Direct Revenue’s business partners communicated to the company when it prepared to unveil its notorious Aurora adware. The emails and other records show Kazaa, Fastclick and others were annoyed by the company’s plans, and threatened on several occasions to sever their business relations.

The suit against Direct Revenue seeks a court order enjoining the firm from secretly installing spyware or sending ads through already-installed spyware. The suit also asks the court to require the company to provide an accounting of its revenues and asks the court to impose appropriate monetary penalties.

“Surreptitiously installed spyware and adware harm consumers and businesses, and my office will continue to prosecute these practices aggressively,” said Spitzer in a press statement. He continues, “These applications are deceptive and unfair to consumers, bad for businesses that rely on efficient networks to do their jobs, and bad for online retailers that need consumers to trust and enjoy their online experience. We will continue to side with consumers in their fight for control of their desktops.”

According to a release from Spitzer’s camp, the suit follows an extensive investigation in which the Attorney General’s office documented Direct Revenue’s practice of installing advertising software on computers without proper notice. In many cases, these spyware installations were instigated when Direct Revenue (or one of its distributors) advertised “free” applications (such as games or browser “enhancement” software), omitting reference to the spyware that would accompany any downloaded application. Once consumers downloaded these “free” applications, however, surreptitious code placed on their computers caused Direct Revenue’s own servers to install its spyware, without notice to consumers.

The Attorney General’s office also recorded several instances in which Direct Revenue’s spyware was installed through silent “drive-by-downloads,” i.e. downloads that took place without any notice at all to consumers. According to today’s report, the office documented 21 separate websites through which this practice, known as “bundling,” occurred. Among the names of the programs that Direct Revenue has downloaded through this method are “VX2,” “Aurora,” and “OfferOptimizer,” each of which tracks consumers’ web behavior and then delivers sequential pop-up ads to them.

Spitzer’s office’s investigation revealed that Direct Revenue and its officers deliberately designed spyware that, once downloaded, was extremely difficult for users to detect and remove. In many cases, the spyware reinstalled itself after removal by users.

An even more notable transgression occurred in April 2005, when then-Direct Revenue CEO Josh Abram (a defendant in the lawsuit) boasted in an email to a distributor, “We have a very stealthy version of our adware product which we’re happy to give u… Don’t worry. If we do a deal — a build together — these will not be caught.”

“It parallels what you saw when CDT took action against 180solutions,” Bill Day, CEO of WhenU, tells ADOTAS. “The difference here is with all the color in the email. You’re talking about a company– according to the Attorney General’s report — that was founded on a business model of fraud and deception. The color of the emails at least suggest that people reveled in the fact that they were a nuisance. Here, they were openly deceptive and that’s what surprises me the most.”
The lawsuit further alleges that Direct Revenue and certain number of its executives knowingly frustrated consumers’ attempts to remove the downloaded software by requiring consumers intent on accomplishing removal to go to a separate web site (mypctuneup.com), turn off their firewalls and download additional “uninstall” software.

The suit specifically names, and seeks relief and penalties from, the company’s founders and chief officers Joshua Abram, Alan Murray, Daniel Kaufman, and Rodney Hook.

Among the practices Direct Revenue may be forced to implement include receiving the clear consent of its users, maintaining the complete privacy of users, refraining from collecting any personal data, facilitating the easy removal of software, and avoiding immersion in websites which target young users.

The lawsuit, initially filed on behalf of Mr. Sotelo, became backed by the Illinois community of resident-computer owners. “Illinois computer users now have the power of a federal court order on their side,” said Shawn Collins of The Collins Law Firm, Esq., co-counsel for the plaintiff. “If Direct Revenue goes back to the old way of doing business—whether on its own or with the help of unscrupulous partners—we will move immediately to see that the federal court order is enforced.”