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Sep 11

Pharma Wars: Paying for Prosecution

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In June 2011, Russian authorities arrested Pavel Vrublevsky, co-founder of ChronoPay, Russia’s largest processor of online payments, for allegedly hiring a hacker to attack his company’s rivals. New evidence suggests that Vrublevsky’s arrest was the product of a bribe paid by Igor Gusev, the other co-founder of ChronoPay and a man wanted by Russian police as a spam kingpin.

Igor Gusev, in an undated photo taken at a family birthday celebration.

Two years after forming ChronoPay in 2003, Gusev and Vrublevsky parted ways. Not long after that breakup, Gusev would launch Glavmed and its sister program SpamIt, affiliate operations that paid the world’s most notorious spammers millions of dollars to promote rogue Internet pharmacies. Not to be outdone, Vrublevsky started his own rogue pharmacy program, Rx-Promotion, in 2007, contracting with some of the same spammers who were working at Gusev’s businesses.

By 2009, the former partners were actively trying to scuttle each others’ businesses. Vrublevsky allegedly paid hackers to break into and leak the contact and earnings data from GlavMed/SpamIt. He also reportedly paid a man named Igor “Engel” Artimovich to launch a volley of distributed denial-of-service (DDoS) attacks against SpamIt.

Gusev told me he long suspected Artimovich was involved in the attacks, and that he had information that Vrublevsky hired Artimovich to attack ChronoPay’s rivals while they were locked in a competition for a lucrative contract to process online payments for Aeroflot, Russia’s biggest airline.

Last month, hundreds of chat conversations apparently between Gusev and his right-hand man, Dmitry Stupin, were leaked online. They indicate that Gusev may have caused Vrublevsky’s arrest by paying Russian law enforcement investigators to go after Artimovich.

Over the past year, Gusev has insisted in numerous phone interviews that the increasingly public conflict between him and Vrublevsky was not a “war,” but more of a personal spat. But if the chat below is accurate, Gusev most certainly viewed the conflict as a war all along.

The following is from a leaked chat, allegedly between Gusev and Stupin, dated Sept. 26, 2010. The two men had already decided to close SpamIt, and were considering whether to do the same with GlavMed. “Red,” mentioned twice in the discussion below, is a reference to Vrublevsky, also known as “RedEye.”

Gusev: $2k from HzMedia to China – it’s mine. We also need to send additional money for salaries plus double bonus to Misha (Michael). I have already paid $50k for Engel’s case (20к – forensics, $30к – to speed up the starting of the criminal case)

Stupin: Why have you paid for Engel’s case ? I was even against paying for the Red’s case. Why pay for Engel’s?  What is the point?

Gusev: To my mind, you do not fully understand what’s been going on for the last year. Paul has a plan to either throw me into jail or end me. His intentions are totally clear. There are only two choices: 1 – do nothing, and pay nothing to nobody, and at the end either go to jail or keep hiding until all the resources are exhausted; 2 – do the same thing, as he is doing, with the same goal.

Gusev: Any war costs money, resources and nerve cells. You cannot go to war little-by-little, you either fight to the end, or do not start it at all. Engel is going to harm us all the time…If there is any potential opportunity to take him out of the game, spending not too much money, we have to use such an opportunity. $50к – is very little comparing to the losses we’ve had because of his DDoS attacks and comparing to future losses if he is going to DDoS us again. Now he is aware that he is being investigated by law enforcement and he keeps a low profile. He only sends nasty ICQ messages to Andrey.

Gusev: There is also a third choice, when nothing is directly linked to you, but money keeps coming. So, decide what we are going to do with all of this. You either agree with my decisions regarding the war expenses, which you do not like, or do not agree with them. In the latter case, we should re-evaluate our income distribution from the business, and I will finance [the war] from my increased share,  I cannot step aside and do nothing.

Stupin: I do understand it, however, what’s Engel’s role? There is nothing to DDoS anymore.

Gusev: I do not want to close down GlavMed completely. Absolutely do not want to :( It’s better to take it underground, and, additionally, open up SpamIt under a new brand name. We are waiting for some news in October to make our final decision. Engel is absolutely positive that he can do anything he wants to under Red’s protection. You should read his messages to Andrey. However, even with all this sense of being untouchable he is no longer that impudent.

Gusev: I will be in mobile Jabber until tomorrow night. Send messages there.

Stupin: So, I am against paying $50k for Engel.

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23 comments

  1. a problem with spam?

    Nothing new, most know that the russian governement are corrupt but you have to admit they dont really look like criminals if there is ever such a outlook

    • Perhaps in Russia; one has no opportunity to do what most would consider “legitimate” business. Many such persons may feel these pursuits are their only out, to make money. However, even if the rule of law were observed perfectly, I somehow feel they would still be doing what most folks find irritating enough to be called illegal. Mainly because they are illegal in most countries. Legitimate, they would be – NOT!

  2. Vrublevsky (redeye) has a more than ten years experience of terrorizing the Russian Internet. But Russian law enforcement agencies take no action all the time, it’s fact.

  3. Everyone is so shocked by this corruption. We’re looking at it the wrong way. I think it was a day trader that once said “in devastation there is opportunity.” The opportunity here for legitimate folks is to dodge the kinds of problems that the law causes which are unethical. In the United States, we have serious problems with patent and copyright trolls. Businesses can be forced to pay huge sums to them, sell to them or shut down outright via the court system. If said businesses were in Russia, they just have to pay $50k or something to the govt & those problems go away. Consumers, government & that business benefits, but the trolls & parasites don’t. Win, win, & win?

    Worst case scenario is that the company couldn’t sell (legally) in America any longer, but still could sell to many other countries. (And Russia or China might steal the I.P. for internal use, of course.) So, everyone else is seeing black and I’m seeing grey. I prefer non-corrupt governments and courts, but I take what I can get & good guys can benefit from this gov.’t too. So, let’s get creative & figure out more opportunities for legitimate companies to make use of, eh, political contributions for charitable causes. ;)

    • No, the worst case is that someone with money pays law enforcement to manufacture a case against a business rival who has done nothing wrong, or uses the threat of such a case to intimidate rivals into withdrawing from a market.

      • And that’s exactly what they are doing in the US via patent system & copyright laws. Intellectual Ventures alone has coerced about $5 billion from US companies using threats to shut them down with huge fines & law suits. Groups like Righthaven go buy copyrights to individual news articles & sue every blogger they can find that reposts it, putting many out of commission. Heck, you can’t even legally sing “Happy Birthday” without paying a royalty. (Fortunately, they only sue studios for that… so far.)

        Not to mention, it was lobbyists bribing politicians that made those copyright/patent laws as they are & kept them that way to this day. The pharmaceutical industry alone pays several million a year. These are laws that affect everyone on a regular basis & make this extortion very easy & legal for the attackers (err I.P. hoarders). On the other hand, the Russian issue affects companies sporadically & can be used by both sides. Personally, I think we have it worse on this issue.

        So, the thing you worry about already happens in the United States en masse. But in Russia, it might not be a problem & business would flow as usual. That was the point. Certain businesses that are high-risk here are lower risk there due to the corruption & even a $100,000 bribe to shut down a lawsuit would have been better than paying say $200 million (i.e. Microsoft) to a troll. Worse, the troll will use the money to extort even more companies, reducing innovation & maybe putting them out of business. I don’t support or endorse corruption in governments, but if it’s going to persist it might be a survival strategy for certain companies with high risk I.P.

        (If you have a better one, by all means do tell. So far, even Microsoft’s highly paid lawyers couldn’t find a way out of this legalized extortion.)

        • Under my scenario; only the originator of the idea would have IP rights – calling them trolls is not productive. You can’t have innovation without making it worth while to the first person to come up with a good idea. Whether they are a manufacturer or a guy with an ACAD program at home makes no difference. Right is right, we need justice in the system. If they would modernize it to protect the little guy as well; the US would lurch ahead of the rest of the “free” world.

          • I like your position on patent rights. If this were the situation, schemes like mine wouldn’t need to exist. Sadly, I had to create yet another approach to deal with the “reality” of the situation, a reality far from these alternatives that have yet to be implemented. I hope we will get real patent & copyright reform in the near future. The outlook is bleak in that most “reform” bills gaining traction are financed by the same people who promoted current laws & have provisions that essentially let them get away with many of the same things.

            So, until the change happens, various offshore & legal strategies must be implemented to keep the US “justice” system from being used by the sneaky or powerful to siphon money from innovative new or financially weak companies.

            • I hear ya Nick P. If the politicians want to improve the economy, they better get on board, or we’ll be treading water for decades!

    • For some reason this “copyright troll” idea always has traction. I personally know more innovators who were ripped off by big companies with more legal money to defend themselves. The little guy is being marginalized, and innovation is being stifled because of the overwhelming lack of respect for IP. The copyright and patent office needs to be overhauled to meet the demands of the 21st Century.

      If someone were holding IP waiting forever for a better deal, that should be their God given right. Otherwise the system breaks down, and we end up with nothing; which is where the economy is going now. The US in particular is losing ground as the leader in innovation, precisely because home and foreign interest have no respect for intellectual property. This is one of the main reasons we have such bad trade deficits.

      The respect for IP should be correlated with tarrifs, that reward countries that actually believe in free trade. For now it is free trade for everyone but the US, and our innovators.

      Yes – if you are a big bucks outfit like Apple, your IP is protected to a degree; but they got the world wide pull to get that satisfaction. No small company has a chance!

      • I +1 you for the legitimate concern you raise, and I’m a little concerned myself that the recent patent reform legislation (not sure if the president’s signed it yet) will cause more of the same in that arena.

        On the other hand, there are real copyright and patent “trolls” out there — not meaning the actual innovator with a legitimate IP concern. In my opinion, when “let’s go around suing people” is a viable business model, there’s a problem.

        • I agree with you Jane for the most part.

          There seem to be three kinds of trolls:

          Big companies that have large R&D departments and even larger legal departments to sue all the other companies for the slightest design infringements. This could be partially fixed with a Patent Office and copyright modernization.

          Another are predatory world wide corporations that literally steal ideas from smaller innovators and out maneuver them in the world’s courts or trade agreements. These are the worst kind of thief in my estimation.

          The other troll is the small innovator that because of banking or other red tape regulation, cannot see fit to start up a manufacturing concern big enough to satisfy demand. Not meeting demand is the surest way to go out of business. So they simply sit on the idea until someone comes up with the business plan that works and they go after them to get at least get some deserved royalty. I feel sorry for both parties in these instances, but have you ever tried to get an idea to market? I have, and it was so bad, I just had to give up and watch others take similar ideas and run with the money all the way to the bank.

    • I’d even say that online pharma industry and the accompanying spam are directly related to our current intellectual property laws. These laws allow Pfizer, Eli Lilly etc to sell drugs at insanely inflated prices. A 100x markup is not unheard of. It’s inevitable that at these profit margins other people would want to get into the game.

      And whereas legal promotion of generic drugs is impossible (http://www.mercurynews.com/business/ci_18746938 http://www.legitscript.com/download/BingRxReport.pdf) , the sellers are necessarily driven to spam, black SEO and other unsavory methods.

      • It’s true that Americans are being ripped off by high drug prices. OTOH, which new drugs have been brought to market by Russian pharmaceutical companies? Chinese companies? Indian companies?

        The prices Americans pay include the cost of development, clinical studies, and marketing. The US has determined that pharmaceutical companies cannot be prohibited from spending insane amounts of money advertising, because it is a restriction of free speech. As a result, a massive percentage of the cost of drugs goes for advertising in print and broadcast media. (You’re not going to hear a lot of whining from those same media companies about those expenditures. Many would go out of business without them.)

        The US also has higher legal costs because of plaintiff-friendly laws (you don’t have a right to medical care if you are poor, but you have an absolute right to bring your lawsuit before a court).

        But one of the biggest causes of price inequities is that other governments negotiate drug prices on behalf of their national health plans, and the US depends on every individual hospital and health insurer to do their own negotiating. US companies just don’t have the same negotiating clout. In effect, the cost of new drug development that benefits people all over the world is unfairly shouldered by Americans.

        So if legitimate, well-inspected pharmacies that are actually located in countries like Canada, Germany and UK — which are selling the exact same drugs as those in the US — wish to reimport those drugs to Americans, I say let them. But people in those countries had better be ready to see the price differential they’re enjoying disappear, because they will no longer be able to demand lower prices than Americans. They will have to bear their share of drug development costs.

        • At the risk of oversimplification and sounding glib I say that this is the American voters fault that collectively they’re paying four times as much for healthcare as the number one country whilst being ranked at number 42 for health outcomes (according to some studies anyhow – whatever, you still pay exorbitant amounts).

          Add to this the large numbers of people that are bankrupted every year through health costs that are no fault of their own even if they’re insured – to an outsider looking in Americans look like fools other than the very wealthy, no offense meant BTW.

          If you’re going to entrust you’re healthcare entirely to profit making entities at most levels what do you expect exactly though – it’s ultimately in the entities interest to not spend money on your healthcare and for you to die early should you be so unfortunate as to require large amounts to be spent.

      • @MZ;

        I agree that it is despicable the way congress always allows big pharma the ridiculous extensions to their IP in the length of time till expiration of copyright/patent. However, since we the taxpayers put up much of the money they spend getting these wonder drugs. I think it is high time we demanded a piece of the action!

        Maybe they need to pay the TAXPAYER royalties for our participation in their R&D!!!

    • Nick,

      You romanticizing corruption just because it’s a foreign concept for you. If you ever had first-hand experience with this societal phenomenon (large scale institutional corruption, the way it is in Russia) you’d never write something like the comment above. Saying that being able to pay off judges to deal with the attacks of patent trolls is a good thing is akin to saying that having no law at all is good because one could execute murderers/serial killers without a nuisance of a due process or a possibility of wrongful acquittal.
      Yes, unequivocal law abiding may sometimes bring absurd and irrational consequences, but the judicial nihilism demonstrated by this post is guaranteed to cause a lot more problems for the society.

  4. My friend Gusev became very plump man:-).
    O, His face has the same stamp as Kuvaev’s face.
    Maybe we will hear soon something like “Gusev was jailed for child sex”. Or something else.

  5. Just interesting.
    A lot of news-sites rewrite articles of Brian.
    But you can see another corruption example in Russian press – magazine xakep.ru
    This guys like to write a lot of black PR of Chronopay give a links to source on livejournal.
    I am sure, this article never will be printed there.
    Because Gusev will never pay for it:-). Yes, Nikita? :-).

  6. Krebs himself offender
    Protects corporations that do not pay taxes and sell drugs that cost cents

    http://online.wsj.com/article/SB121858559939134899.html?mod=us_business_whats_news


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