In 1997, Internet surfers looking for a good time on sites like www.sexygirls.com, www.erotic2000.com and www.1adult.com learned that they could access "MORE SEX for FREE" and "ALL NUDE ALL FREE PICTURES" simply by downloading special image-viewer software identified as "david.exe." But while the porn seekers were getting "FREE XXX IMAGES," the specially designed software secretly turned off their computer's modem volume, disconnected them from their Internet service provider, and reconnected them to phone numbers in Moldova. Each line would stay connected to a number in the former Soviet Republic -- collecting charges in excess of two dollars per minute -- even after the user had migrated from the site. In fact, the long-distance link would stay connected until the computer was turned off.
Tens of thousands of consumers in the United States and Canada began complaining about the huge charges they were finding on their phone bills. Investigators at the Federal Trade Commission traced the complicated long-distance chain to two web companies based in New York City: NiteLite Media and Audiotex Connection. When the FTC filed official legal complaints in October 1997, Peter Knobel was named as a party because his company, Cayman Islands-based Beylen Telecom, owned the Moldova numbers. Knobel told the FTC that he was unaware that the telecom's clients were involved in any illegal activity, and said he had the audiotext phone numbers shut down as soon as he learned they were being used improperly.
The FTC negotiated a settlement with Beylen and NiteLite in which the companies admitted no wrongdoing. Knobel signed the deal in November 1997, agreeing to pay a portion of the $800,000 that was to be returned to consumers. The FTC reached a separate settlement with Audiotex Connection that totaled nearly one million dollars.
That year, Paul Luehr of the FTC's Bureau of Consumer Protection told CNET's News.com that Beylen had acted as the technical mastermind for both companies. "We have alleged that Beylen provided all the companies with the instruments to carry out this scheme, from the phone numbers to the download program," Luehr said.
Knobel denies that Beylen was involved with the pornography industry in any way, saying that rumor was started by enemies of his Crossroads project. But the FTC settlement isn't the only place where Peter Knobel's name has been linked with the adult-entertainment business.
A 1996 lawsuit filed in Florida District Court lists the defendants as "Beylen Communications, Inc, W.K.P. Inc., Seth Warshavsky, Peter Knobel and Ruth Parasol." According to attorney J.B. Grossman, Beylen and W.K.P. -- a company that dealt in "international audiotext" or "10XXX" technology enabling callers to access various "live informational and entertainment services, similar to 1-900 numbers" -- were unfairly charging his client, Telecard Marketing Center, for use of its telephone-sex hotlines. Telecard ran out of money to pay for legal representation and the case was dropped, but Grossman stands by the information gathered for the initial complaint, which identifies Knobel as a registered officer of W.K.P. "We vetted our allegations very carefully," he says.
Knobel says he doesn't know anything about the Florida lawsuit, and adds, "You're fishing for bullshit."
The name more commonly associated with W.K.P. belongs to Seth Warshavsky, a man Wired called the "Prince of Porn" in 1999. Two years earlier, the tech-focused publication had printed a 9,000-word profile of the young entrepreneur, a scrappy pioneer of the online pornography industry. Warshavsky started his business in Seattle in the early '90s, using phone-sex numbers like the profitable 1-800-GET-SOME to build a multimillion-dollar operation. "Then, realizing that he could run calls through Canada and bill customers $3.99 a minute in long-distance charges that cost about one-tenth of that, he opened an operation in Vancouver," the article said. "Eventually he went in with two partners and formed a company called W.K.P. Inc. to build his own long-distance network."