PHONEIX, AZ – A federal grand jury has indicted three individuals on charges of violating the CAN-SPAM Act, as well as federal obscenity, money laundering and conspiracy charges, Acting Assistant Attorney General John C. Richter of the Criminal Division and U.S. Attorney Paul Charlton of the District of Arizona announced Thursday.The indictment and related plea agreement with a fourth defendant are truly groundbreaking, in that they include both the first ever charge related to 2257 record keeping and labeling violations, and the first ever conviction related to the transmission of “obscene” spam e-mail.

The nine-count indictment returned names Jeffrey A. Kilbride, 39 of Venice, California; James R. Schaffer, 39, of Paradise Valley, Arizona; and Jennifer R. Clason, 32, formerly of Tempe, Arizona. The indictment charges all three defendants with two counts of fraud and related activity in connection with electronic mail under the CAN-SPAM Act and one count of criminal conspiracy, according to a statement issued by the Department of Justice.

Schaffer is also charged with one count of operating three pornographic Internet websites without including required statements describing the location of identification and other records for the performers portrayed in the websites, a violation of 18 USC 2257 (specifically the labeling requirements detailed in 28 CFR 75.6).

According to Jeffrey Douglas, Chairman of the Free Speech Coalition (FSC), the record keeping charge is the first of its kind. “This is the first 2257 record keeping or labeling charge in the history of America,” Douglas said, adding that it was “very interesting timing.”

The FSC is currently awaiting a decision from U.S. District Court Judge Walker D. Miller on a preliminary injunction in the case of Free Speech Coalition v. Gonzalez, in which the FSC is challenging the validity of significant portions of the 2257 regulations.

A fourth defendant involved in the alleged conspiracy detailed in the indictment, Andrew Ellifson, 31, of Scottsdale, Arizona, has pleaded guilty to related charges, which “marks the first conviction related to the transmission of obscene spam e-mails,” according to the DOJ’s statement.

The indictment also charges Schaffer and Kilbride with two counts of interstate transportation of obscene material using an interactive computer service, two counts of interstate transportation of obscene material for the purpose of sale or distribution, and one count of money laundering.

According to the indictment, Clason, Kilbride, and Schaffer conspired to engage in sending spam “for their own personal gain, benefit, profit and advantage.” America Online, Inc. received over 600,000 complaints between January 30, and June 9, 2004 from its users regarding spam allegedly sent by the defendants.

The DOJ estimates that the total of end users who received the unsolicited e-mails may sum in the tens of millions. Spamhaus, an international non-profit organization which collects information and evidence on spammers worldwide, reports that the defendants’ spamming operation is one of the world’s 200 largest.

“Americans are fed up with the tens of millions of unsolicited, sexually explicit e-mails received every day,” Richter said in the DOJ statement. “Today’s announcement should send the message loud and clear that the Department is committed to using the CAN-SPAM Act and the federal laws to stop those who invade the homes of American families with unwanted, obscene spam.”

“The Internet is both a blessing and a curse. Unwanted e-mail and pornography in our houses represents a kind of home invasion. Children are especially vulnerable to this kind of act and we will vigorously pursue those who put children at risk in this way,” added Charlton.

The indictment also alleges that the spam sent out by the defendants had graphic pornographic images “embedded” in each e-mail. The four counts in the indictment involving interstate transportation of obscene material stem from the transmission of “hard-core pornographic images of adults engaged in explicit sexual conduct,” images which “meet the Supreme Court’s test for adult obscenity,” according to the DOJ’s statement.

The DOJ also contends that the e-mails were sent in a manner that made it difficult for recipients, ISPs, and law enforcement agencies to identify, locate or respond to the senders.

“This deception was accomplished in a number of ways, including the following: sending the spam e-mails from Internet Protocol addresses registered in the Netherlands and domain names registered in Mauritius; falsifying the ‘From:’ line in the e-mails; installing the computers sending the e-mails and related equipment in the Netherlands; and remotely controlling these computers from the United States,” according to the DOJ’s statement.

The DOJ’s indictment further alleges that Kilbride and Schaffer established and utilized offshore companies named The Compliance Company and Ganymede Marketing to “conceal and disguise their activities.” According to the indictment, Kilbride and Schaffer also employed overseas bank accounts in Mauritius and the Isle of Man to launder and distribute the proceeds of their operation.

If convicted, Kilbride and Schaffer each stand to serve a maximum of 20 years in prison on the money laundering charge, and five years in prison on the obscenity charges. All three defendants could face a maximum sentence of five years in prison on each of the spamming and criminal conspiracy charges. Schaffer could also receive a maximum sentence of two years in prison on the record keeping charge.

“The government is also seeking the forfeiture of proceeds allegedly obtained during the commission of these offenses,” according to the DOJ’s statement.

Andrew Ellifson pleaded guilty on Feb. 18, 2005 to one spamming count and one count of criminal conspiracy. Under the agreement, which was unsealed yesterday, Ellifson also agreed to forfeit money obtained in the commission of these crimes.

According to the indictment, Ellifson “assisted in the creation, operation, and management of the computer network used to transmit the spam e-mails sent by the operation.” Ellifson faces a maximum penalty of five years in prison for each of the spamming and criminal conspiracy offenses. Ellifson’s sentencing is scheduled for Sept. 26, 2005.