The hacker, a high-school student using the pseudonym Ethan still lived with his parents when he first accessed they company’s servers by exploiting a weakness in their firewall. This was at the end of 2006, at a time when business was still good for MediaDefender, with its revenue standing at nearly $16m.

Soon after that, Ethan got access to the company’s email, its networked resources and even its telephone system. Logging in a handful of times each month through the summer of 2007, he started to get bored with “Monkey Defenders” – his pet name for the anti-piracy outfit. Deciding to go out with a bang, he and the Media Defender-Defenders gathered thousands of the company’s internal emails and published them on web.

The rest is history. On September 15, 2007 the database containing thousands of emails was uploaded to several BitTorrent sites. In the release note Ethan and friends wrote: “By releasing these emails we hope to secure the privacy and personal integrity of all peer-to-peer users. The emails contain information about the various tactics and technical solutions for tracking p2p users, and disrupt p2p services,” and “A special thanks to Jay Mairs, for circumventing their entire email-security by forwarding all your emails to your gmail account.”

The emails contained a wide range of information including server passwords, social security numbers, spoofing strategies and vacation pictures. And it didn’t end there. In the days after the email leak, Ethan and friends released a private telephone conversation between MediaDefender and the New York attorney general’s office, a P2P tracking database, which was followed up a few days later by all of Media Defender’s anti-piracy tools. The effect on the company and its operations was dramatic.

In a SEC filing, the financial damage started to become clear. As a result of the hacking, by November 2007 MediaDefender had lost nearly $1,000,000, which affected the stock price of parent company ArtistDirect significantly. Before the email leak, stock was around the $2.25 mark. Three months later stock plummeted to $0.63. Now, a year after the leak the stock price has hit rock bottom, at less than $0.01 per share.

Meanwhile, BitTorrent sites witnessed a decrease in MediaDefender activity following the leak. The Pirate Bay’s Peter Sunde, who sued some key players in the entertainment business for using MediaDefender, told TorrentFreak that there has been a significant decrease in activity from BitTorrent spoofers and decoyers. “It’s strange that no one has given much regard to the fact that the way MediaDefender works is probably illegal in most countries. Even in the US. I might even say, especially in the US,” Sunde added.

Decrease in activity or not, this spring the company still managed to make the tech headlines by sabotaging the BitTorrent tracker of the popular Internet TV network Revision3. Revision3 lost thousands of dollar in revenue because of the DDoS attack, but decided not to take any legal action. Meanwhile, the stock price on MediaDefender’s parent company continued its freefall.

So what does the future hold for MediaDefender? Currently, they have decreased their anti-piracy efforts, and started to explore options to use filesharing networks for marketing purposes. Eric Pulier and Teymour Boutros-Ghali, two former members of ArtistDirect’s board of directors who resigned last month announced that they were interested in buying MediaDefender, but it’s not clear what path they intend to take.

Perhaps a more realistic option, is for the company to file for bankruptcy, as The Pirate Bay predicted they would, long before the emails leaked.

Source: TorrentFreak, for the latest info on copyright, file-sharing and anonymous VPN services.

In a lengthy blog post Louderback explains what happened, as he writes: “Media Defender was abusing one of Revision3′s servers for their own purposes , quite without our approval. When we closed off their backdoor access, MediaDefender’s servers freaked out, and went into attack mode , much like how a petulant toddler will throw an epic tantrum if you take away an ill-gotten Oreo.”

MediaDefender’s attack effectively took down the Revision3 BitTorrent tracker this weekend, and people were unable to grab the latest episodes. That was not all, the flood of SYN packets also took out their webserver and their email. These kind of attacks are illegal according to US law, and if Revision3 decides to pursue this case in court, it would not be the first time MediaDefender gets caught.

Only a few months ago, The Pirate Bay sued several media companies that hired MediaDefender, for exactly the same behavior. Pirate Bay founder Peter Sunde said at the time: “They are going around accusing the pirate community for doing immoral stuff, when they do illegal stuff. We need to make a statement that just because something might be hard to fight it doesn’t mean that laws do not imply in the case.”

Louderback has no idea whether the attack on their network was intentional or not, but said he involved the FBI. “Was it malicious? Intentional? Negligent? Spoofed? I can’t say. But what I do know is that the FBI is looking into the matter , and it’s far more serious than toddlers squabbling over broken toys and lost cookies.”

This is yet another epic fail in MediaDefender’s history, and this might very well be the final punch to knock the company out. Most of you probably remember the leaked emails and confidential information, which cost the company hundreds of thousands of dollars, and brought them on the verge of bankruptcy.

To quote MediaDefender’s CEO Randy Saaf: “This is really fucked.”

Update: Ironically Revision3 seems to be down again because of all the traffic the news generated.

Source: TorrentFreak, for the latest info on copyright, file-sharing and anonymous VPN services.