June 15, 2005
Intermix Says It Has Settled NY Enforcement Action Over Adware
Intermix issued a press release today claiming to reach an "agreement in principle" to settle the Spitzer enforcement action over Intermix's alleged distribution of illegal adware.
Have the Parties Settled?
On the same day, Intermix announced improved earnings. The combination of the two caused Intermix's stock price to rise 27% in after-hours trading.
Hmm. This timing seems, well, interesting. This isn't the way most lawyers would advise a company to proceed. Standard lawyer advice: no press releases on deals that aren't signed. Indeed, there have been a few reports today from Spitzer's office that the lawsuit has not been settled. Even the Intermix press release says that the details need to be worked out and approved by the court.
The way I see it, there's a non-coincidental fortuitous combination of elements:
* Good news on a closely watched lawsuit that will generate a lot of press coverage for the company.
* Good financial news at the same time.
* A predictable bump in the stock price, perhaps temporary as the press attention to the company dies down.
A cynic might smell a pump-n-dump. The conditions sure seem optimal for it.
The terms of the claimed settlement:
* Intermix pays $7.5M over 3 years. According to Bambi Francisco at Marketwatch, this amount "represented the disgorgement of global advertising sales from the allegedly improper downloads."
* Intermix stops distributing its adware, redirect and toolbar programs, which Intermix says it has already done.
In addition, although these developments do not appear to be part of the settlement, Intermix's press release touts that it has created a chief privacy officer position (although, interestingly, the press release does not name this person) and has joined the Network Advertising Initiative.
The $7.5M settlement is a sizable payment from Intermix to the NY AG. Spitzer's office can surely spin this as a big win for its office and allow it to tout that adware doesn't pay (at least, adware that doesn't meet Spitzer's standards, whatever those are).
On the other hand, clearly Intermix thinks this is a win. Their stock price rises, they lift the cloud over their business, and the insiders have a great opportunity to dump their stock on the heels of good news.
So another way to look at this settlement is that Spitzer was able to extort some cash from a public adware company that was willing to pay out to buy a boost in its stock price. These types of extortive deals are fairly common in litigation, but it's a little sad to see elected representatives (especially the enforcers of our laws) playing the game.
Meanwhile, a settlement would have 2 other consequences, both negative.
First, it means we don't get any precedent about exactly what constitutes legal/illegal adware distribution. We sorely need this precedent to prevent future extortive deals like this one.
Second, we don't get any more clarity about who else is on Spitzer's hit list and how aggressively Spitzer's office will pursue them. Thus, uncertainty will continue to dog the adware industry until we see more of the cards in Spitzer's hands.
Posted by Eric at June 15, 2005 05:40 PM | Adware/Spyware