This Ex-Hacker's Fat Is in the Fire

[InfoSec News <isn () c4i org>]

http://www.businessweek.com/bwdaily/dnflash/apr2002/nf20020411_3688.htm

APRIL 11, 2002 
EURO-TECH 
By Jack Ewing 

The escapades of larger-than-life German Netrepreneur Kim Schmitz made 
him a cult figure. Now they've landed him in jail 

Eight months before the indictment, Kim Schmitz saw it coming. As 
German authorities closed in on the one-time hacker and Internet 
entrepreneur, he threw one last blow-out party in May, 2001 -- 
immortalizing the revelry with digital photos posted on his Web site. 
Schmitz and entourage headed off to Monaco from Munich in a fleet of 
rented sports cars, booked a pair of huge yachts, and invited a bevy 
of attractive women in bikinis to join them. The champagne alone cost 
$40,000, Schmitz boasted on his Web site. 

It was all very much in character for the self-described "330-pound 
loudmouth" (see BW Online, 3/7/01, "The Ex-Hacker Who Would Be Tech 
King"). Yet, in a rare moment of contemplation, Schmitz, 28, headed to 
the top of a mountain overlooking the Mediterranean and posed for the 
digital camera while gazing from the window of an abandoned stone hut. 
He explained on his Web site that the grim stone structure could be 
his next office -- except the bars were missing. 

PUMP AND DUMP?  Not anymore. Since January, when German authorities 
finally tracked Schmitz down and extradited him from Thailand, he has 
been sitting in jail near Munich awaiting trial on insider-trading 
charges. As you might expect from a guy who says his goals include 
forming his own political party and starring as the evil genius in a 
James Bond movie, these aren't just any insider-trading charges. 

Munich prosecutors allege that Schmitz bought shares worth $327,000 in 
letsbuyit.com, a retail site where buyers pool their purchasing power 
in a kind of online cooperative, on the same day he told the company 
he was ready to put up money to help it avoid insolvency. When the 
letsbuyit.com made Schmitz's pledge public a day later, prosecutors 
say, the shares shot from 25 euro cents on Frankfurt's Neuer Markt to 
60 cents. Schmitz then sold his stake for a profit of some $1 million 
-- a sum that probably makes it the largest insider-trading case in 
German history, authorities say. 

Granted, it's a pretty short history: Insider trading was legal in 
Germany until 1995. Convictions are rare, and no one has ever done 
prison time for an insider-trading conviction, though defendants have 
received suspended sentences. 

DAY IN COURT.  Could Schmitz be the first? That's an interesting 
question. Last year, a German TV journalist was acquitted of insider 
trading after he recommended that viewers buy a stock he had himself 
purchased days earlier. But the judge ruled there was no proof the 
journalist planned in advance to recommend the shares. Schmitz is 
likely to rely on similar legal theory when he faces trial, set for 
late April, 2002, or early May. Schmitz's lawyer, Thomas Pfister, 
argues that his client's actions were no different than banks that 
deal in the shares their analysts recommend. 

Judges rarely imprison defendants on the first offense. But Schmitz 
isn't a first-time offender. He was detained in 1994 on charges 
stemming from accusations that, among other things, he and accomplices 
used stolen AT&T and MCI phone-card numbers to make hundreds of calls 
to bogus offshore "chat services" they operated themselves. The chat 
services collected a portion of the phone tolls, which were billed to 
unsuspecting AT&T customers, authorities say. Convicted of computer 
fraud, Schmitz received a suspended two-year sentence. 

Whatever the judicial outcome of Schmitz's latest legal troubles, it 
has temporarily stalled his entrepreneurial career, such as it was. It 
was never totally clear how seriously to take his various business 
ventures, which included a company that equips cars for mobile 
Internet access. 

TROUBLE APLENTY.  In fact, Dusseldorf lawyer Klaus Dittke is pursuing 
a separate complaint that accuses Schmitz of using false pretenses in 
an alleged effort to lure investors for a startup incubator he called 
Kimvestor. The complaint, on behalf of an investor-advocacy group, 
claims that among other things, Schmitz falsely advertised that 
Kimvestor's supervisory board included top executives from 
DaimlerChrysler and Dresdner Bank, who in fact weren't involved. 
(Schmitz, through his lawyer, disputes the accusations, saying they 
are unfounded.) 

Schmitz has, however, been remarkably successful at building his own 
cyber-legend -- portraying himself as a hacker who made a fortune 
advising others how to avoid becoming victims of computer crime. He 
staged elaborate parties around the world, which were documented by 
the likes of RTL, one of Germany's leading TV networks. Some in the 
country's press corps took him half-seriously. He was once termed a 
"super-brain" by Finanzen, a German finance magazine. "He's a highly 
intelligent young man. It's really brilliant what he has achieved," 
says Pfister, Schmitz's Munich-based defense lawyer. 

Still, there has always been an element of farce in Schmitz's antics. 
His Web site (www.kimble.org), which is still operating, veers between 
self-promotion, self-pity, and self-parody. On the same page that 
Schmitz seeks salesmen for the Kimvestor Equity Fund he also invites 
girls (legal age) interested in experiencing his "humor, charm, 
lifestyle, and friendship" to write him at his e-mail address. 

KILLING TIME.  Schmitz can be mawkish, too. He has made public threats 
of suicide. In January, around the time of his latest indictment, he 
issued a "farewell letter" in which he claimed that Germany was 
hostile to geniuses such as himself and announced that he would be 
leaving the country. He was arrested in Thailand and extradited to 
Germany on Jan. 21. 

As he waits for trial behind bars, Schmitz's braggadocio seems to be 
intact. He has told visitors that he won the warden's twin daughters 
in a poker game. And he has writing his memoirs, provisionally 
entitled, Life in the Passing Lane. 

If Schmitz achieved one thing, it may have been to take the absurdity 
inherent in the dot-com craze and elevate it to high comedy. That may 
explain why some Germans still consider him a folk hero. "He's as 
famous as the Chancellor. He has really achieved something in life," 
raves Sascha Wemmel, a 29-year-old mobile-phone salesman from Hanover 
who operates a fan site (www.kim-schmitz.de). Just don't lend Schmitz 
your credit card. 



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