LISA CHOW: From Gimlet Media, I'm Lisa Chow. This is StartUp.
Last week on the show, we heard about a form of virtual real estate—domain names—and specifically domain names that end in dot com. How they still sell for millions of dollars, even when there are plenty of other kinds of domains out there now, like dot biz, dot io, dot limo.
This week’s show is about how domains became property in the first place. It all goes back to a lawsuit—one of the most important lawsuits in the history of the internet. This dispute stretched on for years and nearly ruined one man’s life.
Reporter Amy Standen has the story.
AMY STANDEN: The domain at the center of this lawsuit was sex.com.
GARY KREMEN: Welcome. Hi. How’s it going?
AMY: And the man behind that domain is this guy.
GARY: Come on in. Do you need any water or anything?
AMY: Who I went down to see in Palo Alto, because I wanted him to tell me this story.
GARY: Kind of a crazy story isn't it.
AMY: Introduce yourself.
GARY: Yes, so my name is Gary Kremen. I’m an entrepreneur. I’ve started a couple of companies and I’m here to talk about domains and I’m honored.
AMY: That “I’m honored” is so Gary. He’s this teddy bearish guy. He’s always smiling and very eager to please. But there’s another quality about him that will turn out to be important later on, which is that Gary is an obsessive.
GARY: This room was chaotic, and I’m about two hours into it.
AMY: He has two young sons, and these kids had so many toys. Gary and I were standing in their room, and we were practically knee deep in toys.
GARY: Do you think there’s too many toys?
AMY: Gary was in the middle of this project to organize all these toys. So he had his label maker out and he had his bins. And I think most parents would throw all this stuff in cardboard boxes and put it on the curb, or have a yard sale, or something. But not Gary Kremen. Gary was going to systematically sort through every piece.
GARY: I need to put all the glue sticks together. Glue sticks will be an early win.
AMY: And it’s not just toys. This is how Gary is. When he gets into something, he’s all in. He has a hard time letting go. He’s extremely thorough—sometimes to a fault. And that quality is part of what got him into this whole sex.com mess in the first place.
So, flashback to 1994. Gary had a Stanford MBA and an undergrad degree in engineering. He wanted to become an internet entrepreneur and one of his early ideas was that the internet seemed like a really good place to do classified ads. He wasn’t quite sure how that was going to work, but he went ahead and snapped up domains for all of these categories. Basically, he went through the classified ads section of the newspaper and registered domains for all the words he was seeing.
GARY: So I got jobs.com and autos.com and housing.com.
AMY: And among this bunch of domains was sex.com. And he didn’t really even think about it. It was sort of this land grab moment. Figure out what to do with it later, for now let’s just register as many domains as possible. So he has to sort of pick: which of these domains am I going to work with first? Which of these seems like it has the most potential. And the one that really jumps out for Gary is match.com.
GARY: I was single. I was doing a lot of 900 numbers in the back of the Bay Guardian and The Weekly.
AMY: He’s talking about those dating services, where you’d read someone’s personal ad in the paper and then you’d pay to leave them a voicemail.
GARY: And I would do those! And I would have big bills.
AMY: Gary thinks, “I can improve this system! Make a website where people talk to each other directly.” So he forms a company to build this site called match.com—the same match.com that would go on to become the first big dating site in the world. He starts getting investors, and he ends up transferring all his other domain names to the company. All of them except sex.com.
GARY: Because the investors were too embarrassed. They’d go “Gary. We don't want any...don't talk about that. Leave it in your own name. We wanted nothing to do with it.” So all during that time I had this name, sex.com—or I thought—in my name.
AMY: But you just weren't paying attention.
GARY: I wasn’t paying attention. It was crazy out there, I was working hard, you know. So much is going on.
AMY: After just about a year, Gary had a falling out with his investors, and he left match.com. And when he left, the company got to keep all the domain names that Gary had signed over to the them. All of them except for that one they had been too embarrassed to claim. Sex.com.
So at this point, that's all Gary owned. No more match.com. No other domains, just sex.com.
Then, one day, he got a call from someone he knew in the industry.
GARY: And he goes, “I thought you owned that sex.com.” And I go, “Yeah.” And he goes, “No, you don't.” And I look and it wasn't in my name.
AMY: When he went to sex.com, he found a full-fledged 1990s porn site.
GARY: It was this disgusting website. It was a click farm. A bunch of banners.
AMY: Turns out, this website was being run by a man named Stephen Cohen.
GARY: It says Stephen Cohen here, and I’m like what are you talking about?
AMY: Gary had never heard of this guy. Eventually, he’d do a ton of research, find out all kinds of shady stuff. He’d learn Stephen Cohen had done jail time for impersonating a bankruptcy lawyer, had run a swingers club in southern California, and allegedly once impersonated a judge in Arizona. For two weeks.
But for now, all Gary knew was that Steve Cohen lived in San Diego and was a big deal in the online porn industry. And that he’d built this empire on Gary’s domain name. Which he had stolen. And the way he stole this domain is with a letter. A forged letter.
GARY: There’s a letter with letterhead: “Online Classifieds, Inc. 242 Cole Street, San Francisco, California 94117.”
AMY: What is that address?
GARY: Well, I used to live there.
AMY: Steve Cohen claimed that he had received this letter from Gary’s company, saying, essentially “We don’t want this domain, sex.com anymore.”
GARY: Our board of directors has decided to, underline, abandon sex.com
AMY: And you, Steve Cohen, can have it.
But the closer you look at it, the fishier this letter gets. For starters: the typos. This woman who allegedly sent the letter is named Sharyn Dimmick. But in the letter her name is misspelled. That’s one problem. Another red flag is this one very strange line.
GARY: “Because we do not have a direct connection to the Internet, we request that you notify internet registration on our behalf to delete our domain name sex.com.”
AMY: In other words, the letter is saying that Gary's company—which is called Online Classifieds—doesn't have Internet access. And it asks that Steve Cohen handle the transfer himself. This a crazy letter. But it worked. Network Solutions—which is the company that had the government contract to distribute domains—they got the letter, and they transferred ownership of sex.com to Stephen Cohen.
By the time Gary found all this out, a couple of years had gone by and Steve had made millions of dollars in ad revenue off of sex.com. Money that rightfully belonged to Gary.
So Gary sues Steve.
And then Steve? He sues Gary right back, for defamation.
And the legal back and forth just snowballs from there.
There’s a book about this case, written by a British tech journalist named Kieren McCarthy. And he told me that at a certain point, this whole affair became almost impossible to follow.
KIEREN MCCARTHY: Every time there was another part of the story, it was another lawsuit. I would guess twenty? Twenty lawsuits? And more outside. It was enormous. Basically Stephen Cohen was just flooding in with lawyers and lawsuits and it was all just to try and break him.
GARY: It was this continuing huge amount of legal bills, you know this overhang of millions of dollars of bills on my side.
AMY: Money you owed.
GARY: Yeah, to lawyers and other court reporters and everyone involved. Borrowing from friends, and someone who clearly had it who is clearly the bad guy who was just tormenting and teasing me.
AMY: Gary knew he was right. And Steve was wrong.
But every time he felt like he had proved this, definitively, Steve would come up with some whole new defense, or legal argument to tie up the proceedings.
For instance, Steve said he had owned the phrase “sex.com” since 1979. That was before anyone was even talking about “dot coms.” Of course, this wasn’t true. But it became just another rabbit hole for Gary and his lawyers to go down.
KIEREN: Yeah it's an amazing thing. People call it persistence. But it's basically just lying. And bald faced lying. And he's absolutely relentless. At some point you just give up. It’s human nature, unfortunately. At some point you think, “What's the point in me keeping on doing this?”
AMY: It’s human nature, but it’s not Gary’s nature. He couldn’t give up. He was obsessed with the case. His friends got tired of hearing about it, they stopped returning his calls.
But there was one person who did call. One person who was equally obsessed with the case. And that person was Stephen Cohen.
GARY: You know first he'd sometimes call me every day. A couple times a day. He’s an obsessive caller. “Hey, I want to tell you about this new thing I'm working on.” I go, “I'm busy.” He goes, “Yeah, but I think you'd find this interesting,” and go on and on and on and on.
AMY: Gary thinks Cohen just wanted to push his buttons.
GARY: He was always saying how I was going to jail and my attorneys were going to jail. All the time.
AMY: Did he ever say, “Yeah, I stole this thing from you, but you’re never going to get it back.”
GARY: Absolutely not, because I stole it from him. His belief was it was his idea, his IP, and I should be writing him the checks.
AMY: It was a relationship, of sorts.
GARY: I don't know what the word would be. I don’t even want to say frenemies. I was like a victim listening for an atonement on the other side, for him to atone. Never did it.
AMY: So you have these two guys. Enmeshed in the endless dispute, and sharing this strange bond. Only Steve Cohen was a multimillionaire, living an opulent porn king lifestyle. And Gary was broke. And not just broke. Over the years fighting these lawsuits he had developed a really bad drug problem.
GARY: You know I did a lot of cocaine and methamphetamines. MDMA and everything. A lot of prescriptions: Xanax, Ativan, Klonopin, Oxycontin—the whole range of bad behaviors.
AMY: Gary was just spiraling. He was falling apart.
GARY: Depressed and out of my mind...just…I felt in a Kafkaesque world that you know I was almost having to live on the street, sell everything I had, the building, all the money I had in the bank to give it to lawyers, and the case wasn't going great. Not the greatest time in my life and very depressed.
AMY: You look, honestly, a little depressed even talking about it.
GARY: I know, it was kind of a nadir of time.
AMY: At one point, Gary tried to settle the whole thing. He told Steve, if you’ll just admit that you stole the domain from me, and give me something, I'll stop fighting.
GARY: I said to him, “$100K I’ll go away.” But he goes, “Nope. I invented it. I’m never giving you a penny.”
AMY: So, Gary had racked up millions of dollars in debt. He’d burned through multiple attorneys. When, finally, in 2001, he caught a break. A big break. He won the suit against Steve Cohen. A federal judge ruled that Steve had stolen sex.com from Gary. And because of that Steve owed Gary damages. A lot of damages.
GARY: We had a four-day trial. We showed all the evidence of how much money he was making. Court said he made $40 million on it, and punitive damages of $25 million. And all he owns is mine.
AMY: So that’s $65 million that Steve Cohen now owed Gary Kremen.
GARY: It felt very good, but I knew collections was going to be tough. Because he was transferring all the money offshore to bank accounts which were beyond the reach of the U.S.
AMY: He created like a dozen companies.
GARY: Yes, dozens of companies offshore, transferring stuff to his wife's name, stuff like that. Made it really tough.
AMY: And meanwhile, Steve Cohen was nowhere to be found. He fled to Mexico right before the judgement came down. And he stayed there.
In 2002, Gary went back to court, to argue that it wasn’t just Cohen who was at fault. But that Network Solutions—the company that accepted the forged letter and transferred the domain to Steve—that they should also be held liable.
In 2003, Gary won that case, too. And this was a huge deal. Because it was the first time in the history of the internet that a judge said, “domain names are property. They can be bought, sold, and stolen.
This set a precedent for all sorts of virtual property—not just the domain market, but other digital property, like Bitcoin.
The whole idea that virtual objects can be owned traces back to this one lawsuit.
But for Gary, all of this was sort of academic. He was owed a ton of money. And he wanted it.
AMY: Is there still a reward out for this?
GARY: I’ll give a reward right now! I’ll give someone 20% of what I recover. $70 million. Come and get it!
AMY: The search for Steve Cohen’s millions, coming up after the break.
AMY: So when we left off, Gary Kremen had finally been handed a victory in a lawsuit over the domain sex.com, which had been stolen from him by a man named Stephen Cohen. Steve owes Gary $65 million. But Steve has fled to Mexico. And he’s vowed not to pay Gary a penny.
There is one asset Gary’s been able to collect. And that is Steve’s house. This is where Steve had been living all through the lawsuit. And that fact used to drive gary crazy.
GARY: He was living in a mansion, 9,000 square foot house in Rancho Santa Fe, with an infinity pool, tennis court, and a huge guest house.
AMY: So all of this, thanks to the court decision, now belongs to Gary. At this point, Gary’s just wrung out by the lawsuit. Even though he won it, he’s still broke. He’s still doing a lot of drugs. He needs a restart. So he packs his bags and drives down to Rancho Santa Fe. To move into Cohen’s old house.
GARY: So I go down there and everything is stripped. He ripped the wires out from the walls. He took all the cabinets, he took all the toilets, he took all the drawers. It was like a disaster, a shell of a house. Even though the court ordered him not to do anything. He did it anyhow.
AMY: So even though this place is a dump, Gary moves in. And it turns out to be a really bad idea. Because Steve’s old place is a huge mansion. And it costs a fortune to maintain.
GARY: Oh yeah, palm trees and maintenance and staff. I hated it. It was anxiety producing. I would seethe in the pool. Even looking at the pool made me seethe.
AMY: So you’d think Gary would just sell the house. But he doesn’t, because it strikes him as an opportunity. He’s spent years chasing this stolen domain, sex.com, watching this other guy make a ton of money off of it. He figures, now it’s his turn. So Gary moves into the house and tries to reinvent himself as a porn entrepreneur.
There’s this profile of him from this period, and there’s this photo of Gary, and he’s sitting in a chair, and he’s wearing a tuxedo. And then facing him is this woman in a sort of Vegas strip outfit—you know a thong and all the rest—and you only see the back of her. So she’s facing Gary as if she’s putting on a show for him.
And you can see in this one picture kind of everything that’s going on. He’s trying to play this part—he’s living, like, the dream. But this guy sitting in this chair oh...it just doesn’t look right.
GARY: Having spent a couple of years in adult business, it's one of those businesses that could look better on the outside than the inside. It was a product of a different time and a different mental outlook.
AMY: Eventually, Gary gets an offer to sell sex.com, which he does, and moves out of Cohen’s house. And if this were anyone else, that might be the end of it. An opportunity to close this whole sordid sex.com chapter of his life. Move on. But that’s not who Gary Kremen is. He can’t let it go. Steve still owes him $65 million. And he intends to get it.
And it’s at this point that a guy named Tim Dillon enters the picture.
TIM DILLON: I am the managing partner at a law firm here in Carlsbad, California.
AMY: Tim has a boy scout-ish look, kind of like Coach Taylor from “Friday Night Lights.” He lives a couple miles away from Steve Cohen’s old house, the one where Gary’s living at this point. And in 2004, Gary invites him over.
TIM: He’s this single guy living in an 8900 square foot house. The master closet was full of file cabinets, of all of his files for this case. That was who Gary was at the time.
AMY: What were you brought on to do, like why did Gary call you?
TIM: One of the things that drove Gary crazy was the fact that Steve Cohen had fled to Mexico, was holed up in Tijuana, and was still operating a number of websites and businesses you know within a mile of the border.
AMY: Gary hires Tim and a private detective to go to Mexico, and try to track down whatever money Steve has left. Because whatever he’s got, belongs to Gary.
TIM: We had three primary attorneys working together with Gary's private investigator, with an attorney from Mexico that was helping us locate information. And there were a number of times we had to go down and meet with groups of people in Mexico. This process probably took five months and probably cost Gary over $200,000 of legal time.
AMY: Gary also asks Tim and the rest of the team to look for assets in other parts of the world—money they believe Steve has stashed in a web of companies and offshore bank accounts.
GARY: Estonia, Norway, Bahamas, Vanuatu, the BVIs, the Caymans, everywhere he's got stuff.
AMY: And you can't, just because he's owed it to you, you can’t go get it?
GARY: Yeah. Those governments, the courts there don't turn around. You’ve got to re-sue him there. And they'll say oh it's beyond statue.
AMY: In 2005, Steve is arrested in Mexico and handed over to U.S. Border Patrol. He’s brought to jail in San Diego. And he’s told: “Pony up, you owe this guy $65 million. We know you have money somewhere. Produce it. And until you produce it, you’re not leaving jail.” And Steve Cohen says, essentially, “Fine.” And he stays in jail for over a year just refusing to reveal where his money is.
LAWYER ON DEPOSITION TAPE: I just have a couple more questions for you today…
AMY: While he’s in custody, Steve is deposed by Gary’s lawyers. This is one of the few recordings we have of him. Gary keeps it on his laptop. We watched it together.
DEPOSITION LAWYER: Seems clear to me, there were revenues…
GARY: So watching it again does bring up some of the memories to me.
AMY: When Cohen comes on the screen, Gary is transfixed. He can’t stop watching.
GARY: Let's just look at this guy for one more minute. You’ll see what I’m talking about. He’s just uh…
AMY: There’s Stephen Cohen, in an orange jumpsuit. He’s pudgy, with gray hair. He’s slouched back in his chair. And his whole vibe is just can’t-be-bothered.
DEPOSITION LAWYER: We have bank records from your bank that show tens of millions of dollars flowing through over a number of years. So my question is…
STEPHEN COHEN: Wait a minute, wait a minute, wait a minute. Tens of millions of dollars? There has never been tens of millions of dollars. That is a false statement.
AMY: In response to Gary’s lawyers, Steve just squid inks the situation. He throws out a whole bunch of confusing leads that then of course send Gary’s lawyers in circles again.
GARY: Some guy in the Bahamas and how things were owned in Tajikistan and all these crazy things that we had to...Algerian trademarks that we had to go run down, just a con man.
AMY: Steve stays in prison for a year and a half, while Gary and Tim try to piece together a paper trail of all Steve’s accounts, to get him to say where his money is. And they can’t. Eventually, Steve is released and heads back to Mexico.
He’s still there.
AMY: How much does Steve Cohen owe Gary Kremen today?
TIM: With interest? In excess of $70 million.
AMY: Wow. $70 million dollar?
GARY: Hey, if anyone finds any of his money I'll give you a reward, right?
AMY: Is there still a reward out for this?
GARY: I’ll give a reward right now! I’ll give someone 20% of what I recover. Seventy million dollars. That wouldn’t suck if I recover it and get it. Come and get it.
AMY: Tim Dillon and Gary say they have spies in Tijuana who help them keep tabs on Steve Cohen. They say anytime Steve starts a new business, they start digging into it, to see if they can seize the profits, or get the Mexican police to shut it down. They say that’s what happened with Steve’s shrimp farm. His illegal bank. His strip club. These days, they’re focused on what they think is one of Steve’s last remaining businesses.
AUTOMATED PHONE RECORDING: You have reached Medicina Mexico.
AMY: It’s an online pharmacy, meds.com.mx. There are links to buy everything from generic Viagra to allergy pills.
AUTOMATED RECORDING: We own and operate 93 licensed and regulated pharmacies throughout Mexico…
AMY: That’s Steve’s voice.
AUTOMATED RECORDING: We also own many domain names that are online…
AMY: No one returned my messages. But eventually I was able to track down another number for Steve.
VOICEMAIL: You’ve reached Stephen Cohen. Please leave your name, telephone number, and what your message is all about.
AMY: Hey, Steve. My name is Amy Standen. And I’ve been reading…
AMY: I tried again the next day. And Steve picked up. When I told him I was a reporter, he said, “I’m not interested in talking.” And hung up on me. I called him back a few minutes later. And we talked for over an hour.
He never gave me permission to record, but it was one of the strangest conversations I’ve ever had.
I’d ask him about the case or about his money. He’d try to shock me with a question about sex or my personal life. I’d ignore him completely, but the more I asked, the more crude and explicit his questions got. It was like a game for him.
But he did say a few things about his long fight with Gary Kremen.
Steve said he never stole sex.com, never forged any letters.
That judgement? The one that awarded Gary $65 million? It’s worth as much as used toilet paper, he said.
The house? It wasn’t his anyway, it was his ex-wife’s, so no big deal to lose it.
That year he spent in jail while Gary tried to find out where his money was? Steve called it relaxing. He met a lot of nice people. “I was determined not to pay Gary a penny,” he said, “and guess what, I didn’t.”
I asked if he, Steve, ever felt bad for what Gary had to go through. “As much as a bumble bee,” he said.
That night, Steve said he planned to drink pina coladas and go dancing near the beach with one of his girlfriends.
This whole Gary vs. Steve affair, you kind of have to ask: who won?
On the one hand: Gary did, clearly. When he sold sex.com, in 2006, he got $14 million for it. The Guinness Book of World Records said it was the biggest domain sale ever. Steve’s house? Gary sold it for $4 million.
And eventually Gary was also able to win a settlement from Network Solutions—the company that had handed over sex.com to Steve back in 1995. The amount wasn’t disclosed, but it’s rumored to be close to $12 million. So Gary comes out pretty well.
But Steve, Steve lives in the world of alternative facts. No matter what, he never stops asserting his own reality, which is that Gary may have won the lawsuit, but he never got a penny from him. And in that way, he still gets under Gary’s skin. In this sense, Steve won. Because he refuses to admit otherwise.
Gary’s lawyer Tim Dillon says he thinks Steve still has money—7 figures, he guesses—stashed away in foreign bank accounts. But he says Steve seems to live pretty simply.
TIM: He's the kind of guy that will, I'm not kidding when I say this, eat hot dogs at the Costco in Mexico just because it only costs a dollar.
AMY: How do you know that?
TIM: We have photographs of him there. People would see him there with regularity. Hot dog and a drink for you know a dollar forty nine.
AMY: Drinking pina coladas by the beach with his girlfriend? Dillon very much doubts that.
DILLON: I can't tell you exactly today what it looks like, since I haven't checked in on him in several months, but his Mexican wife doesn't want to have anything to do with him, his Mexican children don't want to have anything to do with him. He's got them in trouble. I know he has physical ailments, his heart condition. I think he's a lonely guy that has little to show for for what he's done with his life.
AMY: Maybe. Certainly that’s the reality Gary Kremen and Tim Dillon would like to believe in. It would be the kind of emotional justice Gary always wanted. To make Steve experience some of the pain Gary did. You can hear Gary trying to convince himself that that’s what happened.
GARY: Oh well. I'm laughing at him. I seem to be the one who can drive around the U.S. and can open bank accounts and you know live my life and stuff like that. I’ve moved on.
AMY: He didn’t really look like he’d moved on.
AMY: Your knee is like bouncing up and down and you're playing with your hair.
GARY: I know, I’ve got this hair thing going on here. It's just a black hole and a negative. And I've got to focus on some positives. So, “Steve! Hi! Not really going to focus on you right now! I think I'm going to go home and do some positive things.”
AMY: Gary says even now, he’d be willing to give up the chase, if Steve would just admit what he did, pay some small fraction of what he owes. But realistically, Gary knows that’s never going to happen. He knows Steve Cohen better than anyone.
LISA CHOW: Amy Standen is a reporter for StartUp.
Coming up, a founder talks about the guilt he feels bringing his wife along on his own startup rollercoaster.
JASEN YANG: And when we started this I kind of said, look, the most likely outcome is that it doesn’t become a raging success.
JERRY COLONNA: And what did she say when you said that
JASEN: She told me she believed in me.
LISA: We listen in on another session with executive coach Jerry Colonna, next week on StartUp.
StartUp is hosted by me, Lisa Chow. Our show is produced by Bruce Wallace, Luke Malone, Simone Polanen, Emanuele Berry, and Amy Standen. Our senior producer is Molly Messick. We are edited by Pat Walters and Annie-Rose Strasser. Production assistance and fact checking by Max Gibson.
Mark Phillips wrote and performed our theme song. Build Buildings wrote and performed our special ad music. For full music credits, visit our website.
David Herman and Mark Wilkening mixed the episode.
Special thanks Mariana Martinez Esténs in Tijuana, and to Kieren McCarthy, author of the book Sex.com, that includes so, so much more of the crazy backstory to this case. Check it out.
To subscribe to StartUp, go to Apple Podcasts, or whichever app you like to use. Or check out the Gimlet Media website: GimletMedia.com. You can follow us on Twitter @podcaststartup.
Thanks for listening. We’ll see you next week.
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