SCRAMBLING NEWS: DSS FIX RELEASED - PART 2

This article is Copyright 1995 by David Lawson and
Scrambling News. Both parts may be reprinted and
distributed freely as long as they are not modified in
any way.

CONTINUED FROM PART 1

On or about August 31, Jeffrey Carr phoned the officer and
said that he had been talking with Dana LaFever and that he
was interested in seeing the demonstration of the modified
VCII PLUS modules and possibly purchasing a device being
offered for sale. Carr asked if the agent and his associates
would be interested in mass production of the devices being
offered. The officer responded that he would have to
confer with his associates and said that his associates
expected payment at the demonstration/sale in New Orleans
on September 7. He added that 20 of the devices would be
sold for $50,000 each. and that only 20 were being offered to
avoid being busted. Carr acknowledged that the price was
$50,000 and that the test would be to see if the two clones
could be authorized simultaneously.

On September 7, 1993 at approximately 10 AM, the officer went
to Jeffrey Carr's room at the Oliver Hotel in New
Orleans. and was met by Jeffrey Mayes. Mayes introduced
himself as Carr's partner and he said that Carr was too ill
to see the VCII PLUS module demonstration. The agent
transported Mayes to a location in Kenner, LA and
demonstrated the VCII PLUS cloned boards. He discussed
with Mayes the illegality of the boards and Mayes
acknowledged that he was aware of it. Mayes also admitted
that he was aware that many users of the VMS device used
it primarily for the illegal descrambling of encrypted
satellite transmissions. Shortly after that, Mayes was advised
of the officer's true identity. and that he was in violation of federal
law.

At approximately 2 PM the officer returned to Jeffrey Carr's
room at the Oliver Hotel and offered to demonstrate the VCII
PLUS fix to him. On the way to Kenner, Carr described how he
pulled the seedkeys from several legal descrambling devices.
Carr said that they had recently obtained the seed keys for
Request Pay Per View services.

At the Kenner location the officer demonstrated the VCII
PLUS cloned boards and engaged him in conversation
about the VMS devices. Carr was asked specifically
about the method by which the VMS was being distributed,
whereby distributors sign a disclaimer to absolve Video
Marketing Services of criminal liability. Carr described the
legal use of the VMS and did not acknowledge that he was
aware that his distributors were utilizing the VMS for illegal
purposes. The officer then advised Carr that he
is a U.S. Customs Special Agent investigating the
distribution of devices primarily used for illegal
descrambling purposes.Shortly thereafter, another agent
spoke to Mayes and asked him if Jeffrey Carr was also
aware, as Mayes had just told the undercover agent that
many of the VMS distributors were using the VMS device
for illegal purposes. Mayes said yes.

Later that day the officer interviewed Mayes who said that
he and Carr had been in the business of manufacturing
VMS devices for approximately one year. Mayes was the
hardware designer and Carr was the software designer.
Mayes said that upon startup they had conferred with their
lawyers who had advised them to have their distributors
sign a disclaimer to protect themselves against illegal
utilization. Mayes said that he and Carr had met with all
their distributors to make sure that each one had a
computer capable of running the text data feature of the
VMS device. Mayes said each one was instructed to use
the device for legal purposes only. and to sign a disclaimer
to that effect.

Mayes also said that he and Carr recently came to realize
that Bill Hunter and LeFever were using the VMS devices
for the purpose of illegally descrambling satellite
transmissions. Mayes said that he and Carr continued to
supply them because they were such a large part of the
distribution system. Mayes also said that Carr came to him
recently after having been told by LaFever that the PLUS fix
existed. They wanted Carr to determine if it was real. Mayes
said that Carr got excited about the VCII fix and the possibility
 of making a quick million dollars. He said that Hunter and
LeFever would be the actual buyers and that he and Carr
would only receive a kick-back from the sale.

Jeffrey Carr was charged under U.S. Code Title 47, Section 605
(e) (4) and under Title 18, section 371.

The Business

The following is entirely based on guesstimates and is only
intended to provide some order of magnitude.There
are several different modem systems in use, with 10-15,000
users each being typical. The VMS system is the largest,
with an estimated 100,000 users. At a wholesale price of $75
the VMS manufacturing business would have generated
approximately $7.5 million in a little less than a year of
business. [Ed. when S&S was raided in February, authorities
released information that they had done $700,00 in business
the month before they were raided]. Consumers paid an average
$200 for an installed unit for a total of $20 million at retail. In
addition they directly or indirectly have been paying for a BBS
service to download the cable security codes, at roughly $10
per month for a total of $1 million/month. Establishment
sources always calculate the cost of piracy as if each pirate
would pay for services if they weren't being received free but
that is not true. Assuming that each individual would on
average spend $100/yr. on legal programming, then
programmers have lost $10 million in revenue over the
past year.

What was allegedly being offered was a package consisting
of a 3M,3M clone and a 4M with auto- shut-off. That would
provide for three consumer upgrade levels. The qualitative
tests which were allowed to be conducted on the modules
precluded an independent test to determine whether the
three modules had in fact, all been loaded with the same
keys in the first place. According to informed sources, that
is what happened, and GI did not actually demonstrate a
compromise of its PLUS system.

The Charges

We discussed 47 U.S.C. Section 605 with attorney Barry
Teague in the September 1992 issue of Snews. Section
(e)(4) reads as follows:Any person who manufactures,
assembles, modifies, imports,
exports, sells, or distributes any electronic, mechanical
or other device or equipment, knowing or having reason
o know that the device or equipment is primarily of
assistance in the unauthorized decryption of satellite
cable programming or is intended for any other activity
prohibited by subsection (a) shall be fined not more than
$500,000 or imprisioned for more than 5 years for each
violation, or both. For purposes of all penalties and remedies
established for violations of this paragraph, the prohibited
activity established herein as it applies to each such device
shall be deemed a separate violation. (d) for purposes of this
section (1) the term satellite cable programming means video
pro -  gramming which is transmitted via satellite and which
is primarily intended for the direct receipt by cable operators
for their retransmission to cable subscribers.The officer in
the affadavit describes the TVRO system used to give the
clone demonstration as a satellite cable receiving system.

Title 18 Section 371 relates to a conspiracy to commit an
offense or to defraud the United States. It reads: If two or
more persons conspire either to commit any offense against
the United States or to defraud the United States, or any
agency thereof in any manner or for any purpose and one or
more of such persons do any act to effect the object of the
conspiracy, each shall be fined not more than $10,000 or
imprisoned not more than five years, or both.

If however, the, the offense, the commission of which is the
object of the conspiracy,is a misdemeanor only, the
punishment of such conspiracy shall not exceed the
maximum punishment provided for such misdemeanor.
In the historical and revision notes for this law it says that
the statute is broad enough in its terms to include any
conspiracy for the purpose of impairing, obstructing or de-
feating any lawful functions of any department of government.

Others Involved

We have not been able to contact all those involved. Others
we spoke to were under instructions by their attorneys not to
comment. Tony at Magna Systems said that he was raided on
the morning of September 7 by approximately twelve U.S.
Customs agents, executing a search warrant. He said they
were looking for any VCII related objects, but found none.
They answered the phone for the 5 or 6 hours they were
there but it was a slow day and there were only about ten
calls. They left with some computer magazines and his
mother's bank records. He was not charged and is still
open for business.

According to sources, the offices of Video Marketing
Services were raided by U.S. Customs agents who were
towing U Haul trailers behind their vehicles. Nothing illegal
was found, though records and samples were taken. The
agent in charge reportedly told them they could continue
with their business. Video Marketing Services is still open
for business.



The Fallout

This action has visibly shaken satellite dealers across the
country, as well as those who assumed they would soon be
selling VCII PLUS products and that their flagging businesses
would return to normal. The ECM's, the upgrades, the on-going
monthly BBS charges, not to mention the danger in repeatedly
calling a phone number which only downloads cable security
codes has more and more dishowners going legal. Earlier this
 year authorizations were running at about 35,000/month.
Today they are up to 75,000/month. To make matters worse
the HBO/Cinemax western commercial feeds were shut off
on September 20, the Eastern feeds are scheduled for shutdown
October 20, and Showtime/Movie Channel have announced that
they will discontinue their commercial feeds by the end of October.
First Choice in Canada has also announced that it will discontinue
its use of the VCII commercial data stream by the end of October.
We have not heard of any other services announcing their
abandonment of the VCII commercial data stream so there will
still be many services abvailable, but the loss of virtually all the
most popular services and the lack of a pirate alternative leaves
consumers no option but to go legal. Those now turning legal will
probably not readily return to piracy, considering what it has cost
them over the past eighteen months.

If a PLUS fix is released, it may well be done quietly, without publicity
or fanfare. It is inconceivable that anyone would advertise it in a
magazine any time in the near future. The normal distribution channels
which were targeted in the sting are going to be extra leery even if a
valid product appears.According to official sources this is an on-
going investigation.

The specific information about the Videocipher II is only of historical
interest now, but the way the "biz" works is current.

THE END - PART 2 OF 2 PARTS

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