Internet porn mogul Seth Warshavsky and his Seattle-based company are being investigated for possible credit card fraud and income tax evasion, according to former associates who said they have been questioned by federal agents.
Warshavsky, founder and chief executive of Internet Entertainment Group Inc., said he had heard he was under investigation, but added that he has done nothing wrong. If there is an investigation, he said Monday, "I'm sure they won't find any wrongdoing, and they'll drop it."
The probe, which appears to involve the FBI and the Internal Revenue Service, casts new doubt on an online porn empire that has generated as much publicity as profit. For years, Warshavsky has been touted as one of the few Internet entrepreneurs actually making money online. His company is best known for exposing celebrities, having distributed a purloined video of television actress Pamela Anderson Lee having sex with her rock star husband, and nude photos of conservative talk show host Laura Schlessinger.
But last year, two former IEG managers and a former IEG lawyer said in affidavits filed in connection with a lawsuit that Warshavsky had raised cash by double- and triple-charging credit cards of subscribers to his porn service.
They also alleged that Warshavsky, who was planning to take the company public, misstated IEG's revenue and financial health.
Affidavits from eight other current and former IEG employees supported the allegations of overcharging, but the sworn statements were sealed when Warshavsky settled the lawsuit. Warshavsky sued the two managers and the lawyer, alleging that they violated a non-competition clause in their contracts and stole a company e-mail list. Warshavsky has contended that any overcharges were accidental and that customers have since been reimbursed.
A federal grand jury in Seattle issued a subpoena in March for the documents in the case file. The grand jury also subpoenaed the file from a 1998 civil case in which a former girlfriend sued Warshavsky alleging domestic violence. The assault suit was also settled out of court, and the file was sealed.
At least four potential witnesses have been interviewed by Assistant U.S. Atty. Mark Bartlett in the last several weeks. In some cases, investigators from the FBI and the IRS participated in the questioning.
Bartlett and spokesmen for the FBI and IRS declined to confirm or deny whether Warshavsky was under investigation.
