Hella Nation - Evan Wright [111]
Despite the government crackdown, Warshavsky bounced back with a slew of ever more sophisticated schemes. He established ties with the small South Pacific island of Vanuatu and evaded FCC regulations by routing phone-sex calls through there. He opened a company in Aruba and even started an aboveboard company to transmit voice data to Hong Kong.
WITH THE NEW REGULATIONS making the phone-sex business less profitable, Warshavsky turned his attention to the Internet in the mid-1990s. At the time, companies like GE, Time Warner and Microsoft were beginning to sink millions into money-losing websites. But Warshavsky was confident he could turn a quick profit in the new medium by using the Net to distribute pornography. He launched his first site in 1996, naming it Candyland after the children’s game sold by Hasbro. The toymaker sued. Warshavsky was forced to rename his adult site Clublove—but only after receiving valuable free publicity.
A year later, Clublove became infamous for releasing the Pam and Tommy video, and Warshavsky emerged as a star. “After that,” says Cort St. George, “Seth could tell people anything. Everyone said, ‘This is the guy who knows how to make money on the Web.’ He took advantage of people’s ignorance.”
The posting of this video became the most celebrated event in the early history of the Internet. Pamela Anderson Lee’s name became among the most searched items on the Web. According to The Wall Street Journal, notoriety from the sex video turned Lee’s name into a brand to “rival Coke or Pepsi.”
“Money was rolling in,” says a programmer who worked at IEG in the early days. “But the double billing started then. Seth has always liked to do things a little underhanded.”
In March 2000, assistant U.S. attorney Mark Bartlett subpoenaed the sealed records of the lawsuit that Warshavsky had filed against me and two other defendants in October 1999. Agents from the FBI, the IRS and the Treasury Department interviewed Eric Blank about a criminal investigation into Warshavsky, and soon afterward, I met with Bartlett and an FBI agent in the U.S. attorney’s office in Seattle. Bartlett informed me that Warshavsky was suspected of wire fraud related to allegations of overbilling customers on IEG-operated websites and also of laundering money through foreign trusts in order to evade federal income taxes. Bartlett’s questions appeared to be based on many of the allegations I had helped to raise during the lawsuit, as well as on information provided by others who had worked with Warshavsky in business ventures going back to the early 1990s. Warshavsky downplays the significance of the investigation. He claims that he runs a clean operation that is completely aboveboard. “Allegations of wrongdoing were made to The Washington Post,” he says. “Of course the feds are going to investigate.”
Despite all the hits that Warshavsky has taken, he pushes on, putting the best face on his business—even though IEG has recently flirted with bankruptcy. He sold off its crown-jewel assets, domain names like Pussy.com and Blowjobs.com, to raise cash to stay afloat; he also brought in new designers and management. IEG successfully launched a redesigned adult site and announced a partnership with Heidi Fleiss, the former Hollywood madam and a convicted felon. One new senior employee resigned, describing the atmosphere at the company as “hopeless” and