Spyware tsar targets your home computer

He once flew wealthy business executives to the edges of space in Russian fighter jets for $10,000 a time. He offered people the chance to turn their life stories into CD-Roms. And he planted pop-up adverts in personal computers with sophisticated but notorious ' spyware'.

ERTUGRUL: Aiming at BT and other net customers.

Kent Ertugrul is clearly a man with grand ideas. Now the American former investment banker is back, this time with a controversial deal involving broadband.

TalkTalk, BT and Virgin Media, the three biggest broadband providers in the country with more than nine million customers, last week announced a deal with Ertugrul's Aim-listed Phorm that will put 'targeted advertising' in front of millions of internet users.

Ertugrul used his links to the former Soviet security apparatus to develop the Phorm software, which tracks what internet users look at to allow companies to throw 'relevant' advertisements on to web pages that have signed up to the system.

BT and its rivals love the idea because it would give them a chunk of advertising revenue that until now has been carved up between website developers and search engines such as Google.

But customers' appetite for this type of advertising is regarded as small, especially because, unless different family members use separate log-ons, searches by one member will influence the ads seen by others, creating a situation fraught with pitfalls.

Banner advertising is not loved by users anyway and an 'adblock' program is one of the most popular software downloads on the internet. Some spyware software can also gather information about email addresses and even passwords and credit card numbers, but Phorm insists that it will actually protect privacy and will warn web browsers if they go to a site that steals identities.

'All that exists is a random number in our server and some details of websites visited and a time stamp,' said Ertugrul. 'We even ignore numbers longer than three digits so we don't inadvertently harvest a credit card number. There is no way that we or anyone else can use this information to identify a user or even discover the internet address the user is browsing from.'

Ertugrul, 42, who was educated at St Paul's public school in London, said that accountant Ernst & Young had conducted a privacy audit on the new software and given it a clean bill of health and stressed that the system also included a service to detect scam websites, although he conceded that the latest version of Microsoft's Internet Explorer already automatically warned users.

BT was unable to say whether users would opt in and be invited to switch on the Phorm tracking system or whether they would have to switch it off. 'Customers will have a clear choice,' a spokesman said. Virgin Media said: 'We haven't decided yet.' Financial Mail has found that Ertugrul and his company were responsible for one of the most unpopular pieces of spyware software, PeopleOnPage, which once installed was difficult to shift.

The software made pop-up adverts appear in front of web pages that consumers were trying to view. The leading internet security company F-Secure said Ertugrul's PeopleOnPage was a 'very advanced system used to evade anti-virus and spyware scanners'.

Rival Symantec described the technology behind PeopleOnPage as 'high risk' for the consumer. Ertugrul confirmed he was responsible for PeopleOnPage.

The development team for the new software was recruited from Moscow's elite Lebedev Institute of Precision Mechanics and Computer Engineering, a vital part of of the Cold War spying effort and still a centre for developing Russia's 'national security' computer systems.

One senior internet industry figure said: 'I can't see this as good for customers. The company has been relaunched since the days of PeopleOnPage, but I hope TalkTalk and the others have done very good due diligence indeed.'

Other internet service providers, including Orange and BSkyB, are still considering whether to sign up. A BT spokesman said: 'We have done due diligence through Dun & Bradstreet and are happy that the system is secure and that Phorm are fine. We are comfortable with having their computers installed in our operations.'

Whatever doubts outsiders may hold, Ertugrul does not lack faith in his product. He was recently issued options to buy the company's shares when their prices reach £100, £200 and £300. The shares are currently worth £33.

He is also keen to be around to cash them in. Last Friday, the board called a special meeting to set up new rules for the firm, making it far more difficult for directors to be removed.