January 2007

And until he "went clean," you had Scott Richter to thank for it.

Scott Richter's corporate headquarters lie in a dark-windowed building in a row of gleaming office parks in Westminster, Colo. Unlike the lustrous satellite-dish-shaped edifice across the street, Richter's building doesn't scream "$100 million company." His offices have an indifferent, thrown-together feel -- carpenters busily shoehorn 19 new plywood work-stations into a hallway, and Richter's own corner office features sparse furnishings, near-bare walls, drab carpet and a stained couch. Nor does Richter resemble the image of the big-shot CEO or high-tech dweeb-tycoon: he wears shorts and sport sandals, and, at 35, he is portly, brash, disheveled and well on his way to bald.

It may be surprising, in fact, that Richter is even in business, since just last year, he was one of the Internet's most beleaguered denizens, hounded into bankruptcy when Microsoft and New York Attorney General Eliot Spitzer filed lawsuits alleging that Richter and his company, OptInRealBig.com, sent up to 250 million unwanted e-mails per day to unsuspecting in-boxes. Since 2002, he had enjoyed top billing on the Spamhaus Project's Register of Known Spam Organizations (ROKSO) database, and once ranked as high as third on the world's most-wanted list of spam.

While others may have sent more unwanted e-mails, few made as big a splash as did Richter -- all 250 pounds of him -- in the national media, where he proudly anointed himself the "Spam King." The Wall Street Journal featured him on its front page; Details Magazine ranked him as one of the "Ten Most Influential and Powerful Men Under 38"; People Magazine ran a two-page spread on him; his name lit up the spam-hater chat rooms, and he basked in the attention. "Being on anti-spam lists was almost like being in the yellow pages," says Richter. "I looked at it as any press, good or bad, was money in my pocket."

That meant, of course, that it was only a matter of time until Richter fell prey to his own spam-fed notoriety.

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Spam gets its name from a Monty Python sketch about the famously indescribable lunch meat, and it has been around as long as -- even longer than -- the Internet. The first digital junk-mail is thought to have floated across a monitor screen in 1978, when a computer dealer sent an unsolicited sales message over ARPAnet, the military-university network considered the progenitor of today's Internet. As the Web evolved, so did spam: in the early-to-mid-90s, advertisers blanketed chat rooms with junk messages; by the end of the decade, the spammers had moved to e-mail. Last year, according to MessageLabs, a messaging security firm, spam accounted for about 58 percent of all traffic on the Internet. Other researchers have estimated that as much as 75 percent of all e-mails are unsolicited.

We receive so much spam because it is a tremendously cost-effective way of communicating. The spammer simply writes up an advertisement, pastes a series of addresses -- harvested from newsgroups, chat rooms, Web sites, site registrations and random "dictionary" blitzes of popular e-mail services -- into the "To" field, and pushes "Send." It requires no investment beyond a computer and an Internet connection, and it costs just as much to create and send one e-mail as it does a million. A successful campaign, says Richter, might sell 100-200 products for every million e-mails sent -- not a great response rate for traditional marketing, but when you've incurred no costs to send those million e-mails you've still made a profit.

Spam fighters have tried to battle junk e-mail both through security efforts, such as "blacklisting" and blocking frequent offenders, and through legislation. In 2003, Congress passed the CAN-SPAM Act, which required that bulk e-mailers contact only those people who have "opted in" to receive such e-mails, and honor requests to "opt out" of recipient lists. Many spammers, however, have simply moved their operations offshore, and elude blocking efforts by sending e-mails via "zombie" computers that are difficult to trace. "My understanding is that the majority of spam is now being sent via virus-infected Windows machines, DSL and cable-modem machines that have been hijacked by criminal spam gangs," says Scott Hazen Mueller, Chairman of CAUCE, the Coalition Against Unsolicited Commercial E-mail, an anti-spam advocacy organization.

All this to say, spam is probably here to stay. "It's too strong of a medium," says Richter, who has always maintained that his own practices comply with all state and federal laws. "It's real simple -- if nobody ever responded to e-mails, nobody would ever send those e-mails. From the number of Viagra e-mails I get, I would say people are buying them."

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Richter wasn't a born computer guy. Previous careers included gumball machine entrepreneur; restauranteur (he owned a chain of 24-hour restaurants called Great Scott's Eatery and two sports bars), real estate investor, and, according to law enforcement authorities, black-market profiteer -- in 2003, he served probation for a felony offense of receiving stolen goods, and completed 40 hours of community service with a nonprofit that fights anti-spam laws. He also did some day-trading on the side, following the ups and downs of the tech market on CNBC during the early days of the Internet in the late 1990s. "They made you think if you put up a Web site you would be a millionaire," he says.

It was then that he decided to start a Web site. He first launched a business selling pagers on the Web, but servicing the devices "turned out to be a nightmare." Then he turned to the diet industry, selling ever-new-and-improved products with names like "Inferno" ("Melt the Fat Away") and "Body Improver." The diet pills proved lucrative, but he didn't truly hit pay dirt until after the post-Y2K dot-com crash, when Internet start-ups were folding and selling customer e-mail addresses as they liquidated their assets. Richter, who had accumulated his own e-mail list through registrations on his diet-pill site, began purchasing those addresses, and in 2001 he launched Opt In Real Big, sending e-mails offering everything from his own diet pills to mortgages to cell phones to toy spiders. When those efforts proved fruitful, he also began "co-registering" with other Web sites, harvesting addresses when visitors --often, unwittingly -- signed up to receive "partner offers" after registering on the site or filling out "tell a friend" forms.

He collected millions of addresses that way, and he proved tremendously savvy at selling products over the Web. After September 11, he was one of the few companies with American flags on hand, and made a bundle helping to satisfy the nation's rediscovered patriotism. In 2003, when the Bush administration packaged its deposed-Iraqi-most-wanted list as a deck of playing cards, Richter hawked his own Iraqi playing cards -- and says he sold 40,000 decks before he had even printed a card. "I went from being in a restaurant where we're scraping by serving steak and eggs to making thousands of dollars in a day," he says.

The problem with sending out millions of annoying e-mails a day, however, is that you make a lot of enemies. In June 2002, he was placed on the ROKSO top spammers list. Anti-spam vigilantes began harassing him, publishing his contact information and "flaming" him with coordinated e-mail and phone attacks. And then in 2003, Microsoft and the state of New York sued him, alleging that Richter and a bevy of accomplices had sent more than 10,000 unsolicited messages via hijacked "zombie" computers, using fake sender names, forged addresses, and deceptive subject lines like "fwd: we have to talk" and "re: your home loan." Other anti-spam organizations filed their own suits against him. The express intent of the suits was to run Richter out of business. "We will drive them into bankruptcy," Spitzer said after filing the suit.

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On that count, Spitzer and Microsoft succeeded. In March 2005, Richter filed for bankruptcy. A few months before, he had settled with the state of New York, for $50,000 in penalties and costs. In August 2005 he also reached a settlement with Microsoft, agreeing to pay the company $7 million. Throughout, Richter maintained that his company never sent spam, and that all of his recipients had "opted in" to receive his e-mails. "We're not an underground trailer-park guy e-mailing you at night," he says. "We do follow the law."

The unsolicited mails described in the lawsuit, he says, were sent by affiliates -- subcontractors hired to conduct e-mail campaigns. Spammers, however, often lean on affiliates, which are often shell companies set up by the selfsame spammer, to send e-mail without breaking the law themselves, staying at arm's length and simply shutting the affiliate down and denying any knowledge of its illegal practices when complaints are received. "The kingpin spammers set up affiliate programs in which they no longer spam, but the affiliates do and the kingpin profits from it," says Mueller.

Still, Richter did change his ways in the wake of the Microsoft suit. In July 2005, Spamhaus removed him from the ROKSO list. Richter says that only 15 percent of his business is e-mail marketing today, and in August of this year, his company officially changed its name to Media Breakaway to reflect the new focus. The lion's share of his revenues, says Richter, now come from a subsidiary called CPA Empire. CPA stands for "cost per acquisition," and CPA networks link Internet advertisers -- people pushing everything from ring tones to dating sites -- to affiliates who send out or place the ads and are paid only if they produce either a sale or a lead (for instance, a Web-site registration).

While CPA networks still provide opportunity for spam, Richter's move reflects a trend among some of the most notorious spammers of recent years. "Many of them have gone mostly legit," says Michael Ellis, an Internet marketing and security consultant who works with companies that employ bulk e-mailers. "Just because that's where the money is, not because of any moral shift on their part."

Whether he's gone clean or no, Richter certainly has a knack for coming out ahead. Sure, he filed for bankruptcy -- but he never liquidated any assets, the proceedings protected him from all anti-spam lawsuits pending against him, and he withdrew the petition once he settled with Microsoft. He did issue an official mea culpa as part of his settlement with Microsoft. "In response to Microsoft's and the New York Attorney General's lawsuits, we made significant changes to OptInRealBig.com's e-mailing practices and have paid a heavy price," Richter said in a Microsoft press release. Today, however, he sounds far less contrite. "I paid to get rid of it," he says. "Our business doubled after we settled."

In fact, Richter's business has doubled every year since he got into the business of bulk e-mail. Spitzer and Microsoft may have accomplished their goal of pestering Richter into bankruptcy, but they certainly didn't drive him out of the business. From his pastel-drab global headquarters on the Westminster strip, he is now overseeing a company that he says will be on pace to gross $120 million in 2006.

Indeed, none of the attacks on Richter -- not his battle with the biggest corporation in the world and the highest-profile state attorney general in the nation, not the constant attacks from anti-spammers, not the regular drubbing in the media -- seem to register on his personal Richter-scale. One side effect of a corporate diet of spam is, apparently, a very thick skin. "We were tarred because I was outspoken and available for comment," he says. "It was fun. Now it's fun to make money."

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