Free Fatal System Error by Joseph Menn Page A

proved it in the way she designed her page for the 1984 senior yearbook. Others chose casual pictures of themselves cavorting with friends, listing all the great memories they would carry forward from high school. Parasol picked a single photo of herself in jewelry, furs, and full makeup, offering a pout just short of a sneer. Underneath, she wrote her caption: “Diamonds are a girl’s best friend.”

    Parasol got her brash attitude, as she would her start in business, from her flamboyant father, Rick. A heavyset Holocaust survivor, Rick developed federally subsidized housing for the poor but preferred the ostentatious good life for himself. He rode around San Francisco Bay in a noisy speedboat named “Rude,” joined by topless women he found on the Internet, irritating the more circumspect members of the upper class. All the while, he was married to an understanding Swedish housewife. Family life “was like an Ingmar Bergman movie and a Woody Allen movie at the same time, with a little Hugh Hefner thrown in,” said Ruth Parasol’s youngest sister, Ricarda, who went on to front a goth-rock band.

    Rick Parasol’s serious money came from phone sex lines. Ruth followed him into the family business, joining a variety of allied phone scammers who, like Mickey Richardson and Ron Sacco, were second-generation hustlers. After graduating from the University of San Francisco and arming herself with a law degree from Western State University, Parasol and her father teamed up in the 1990s with Ian Eisenberg, a Seattle king of the phone-sex business. The FTC sued Eisenberg in 2000 for running a fake “rebate” check scam in which tiny print on a $3.50 check said that by cashing the check, the recipients agreed to make Eisenberg’s company their Internet service provider for as much as $29.95 a month. Ruth Parasol advised Ian Eisenberg and his companies, which took in $27 million before the FTC stopped the scam. Then Parasol funded an associate turned rival of his, Seth Warshavsky.

    Ruth Parasol and Warshavsky invested millions in phone-sex companies that were sued by North Carolina and Nevada for improper billing and collection practices, such as threatening to seize the home of a woman in her sixties who denied making any calls. Beset with scams, the U.S. barred phone companies from cutting off customers who refused to pay 900-number bills. The Parasols and Warshavsky stayed one jump ahead of the law, moving quickly to put porn on the less-regulated Web. Quietly funded in part by the Parasols, Warshavsky became the best-known operator of Web porn through his Internet Entertainment Group. He bragged of the first widely accessible live sex shows on the Web and distributed the famous sex video made by Pamela Anderson and rocker Tommy Lee.

    Ruth Parasol co-founded IEG, according to a close associate, but made sure her name stayed out of the papers. That fit a lifelong pattern of using her legal knowledge and smarts to plot in the shadows: she has never granted a media interview in her life. Warshavsky defrauded many of his business partners, and several former employees accused him of routinely overbilling customers. Ruth Parasol made sure she wasn’t one of his victims. By 1996 the Parasol family owned 49 percent of Warshavsky’s business, and they sued him, claiming he reneged on an agreement to buy out the family’s share. Before Warshavksy’s scheme collapsed, Ruth negotiated a favorable settlement in 1997. “She got a good deal,” according to an attorney involved in the talks. “She got their dough out and moved on down the road.” Facing massive debts and a criminal probe, Warshavsky eventually fled to Thailand.

    ONCE AGAIN, PARASOL MOVED AHEAD of the curve. She read up on gambling law, consulted some of the top experts in the field, and figured out that online casinos could probably operate safely in other countries while taking money from gamblers in the U.S., where most betting was prohibited. The same year