Intermix Agrees to Settle N.Y. Adware Suit

Rhett Pardon
CALABASAS, Calif. — In a settlement that is expected to send a big message to the online advertising business, Intermix Media Inc. said Tuesday it has agreed to pay $7.5 million to settle a lawsuit brought by N.Y. Attorney General Eliot Spitzer accusing the company of peddling spyware.

The Calabasas, Calif.-based Internet advertising and social networking company admitted no wrongdoing in the settlement with the state of New York; however, it agreed to permanently end distribution of its adware, redirect and toolbar programs.

Under the settlement agreement, Intermix would pay the fine over three years and hire a chief privacy officer.

Intermix, which said it stopped distributing the programs in April, claimed that some of the applications that imbed themselves in users’ computers were left over from the company’s prior business as eUniverse Inc., which was de-listed from the Nasdaq in 2003 because of accounting improprieties.

Spitzer’s lawsuit sought to stop Intermix from secretly distributing the programs and to force it to forfeit illicit gains. It was based on New York’s general business law, which prohibits false advertising and deceptive business practices, and on common law prohibiting trespassing.

The attorney general’s office estimated that more than 3.7 million Intermix programs were downloaded onto the computers of New Yorkers alone and onto tens of millions of PCs in other states. General business law permitted Spitzer to seek penalties of $500 per violation.

Separately, Intermix reported a fourth-quarter loss of $409,000, or a penny a share, on revenue of $24.1 million. The company said it had reserved $6.9 million to cover the Spitzer litigation.

“As previously indicated by the company, distribution of downloadable applications has not been central to current management’s vision for the future of Intermix and was not material to the company’s 2006 forecasts,” the company said in a release.

Intermix stock has taken a beating since the company first disclosed Spitzer’s investigation of its practices, falling more than 50 percent since March.

In midday trading Tuesday, it saw a gain of 42 cents at $6.52 on the American Stock Exchange.