Pepsi, State Farm Insurance, Countrywide Mortgage and several other large corporations pull their ads from Yahoo after a Local 2 Troubleshooters investigation shows their ads appearing on sexually-explicit chat rooms promoting sex with children.

Yahoo! is facing a $10 million lawsuit that accuses it of cashing in on some disturbing chat rooms. The stations' investigation showed what's really going on in those rooms.

The companies are paying huge fees for their ads to appear on Yahoo!. But many are now canceling those ads because of the report. The discovery has prompted fast action in corporate America and a strong reaction at the nation's capital.

"Yes, more legislation is required. The law has not kept up with this type of criminal activity," U.S. Rep. Ted Poe, R-Texas, told the station.

Among the thousands of chat room titles, where people can look for common interests like music or movies, there are other rooms with some disturbing titles, such as:

9-17-Year-Olds Wantin' Sex

Younger Girls 4 Older Guys

Girls 13 And Under For Older Guys

Girls 13 And Up For Much Older Man

Girls 8 to 13 Watch Boys (In A Particular Sex Act)

The station found all of those rooms listed as education chat rooms, sponsored day in and day out by some major companies consumers have heard of -- all paying money for their ads to be seen before a person enters the child-sex chat rooms.

"Children are the largest victimized group in this country, and we need corporations to do the right thing," Child Rescue Network, Inc. spokesman Charles Clickman told the station.

Before entering the chat room titled "5 To 13-Year-Old Kiddies Who Love Sex" or "Girls 5 To 13 For Older Men," guests were required to click on a Star Wars-themed ad from Diet Pepsi.

Inside the chat rooms, not only were men trying to meet children or even take them away from home to run away, the station found countless adult men using Web cameras to send children in the room lewd pictures or display live nude images of themselves.

However, the nation's top law enforcement officers said it is all legal.

"Short of changes in the law in Congress, we may be limited about what we can do in this area," U.S. Attorney General Alberto Gonzales said.

Gonzales told the station he can't use the laws now on the books to shut down Yahoo!'s child sex site. But back in 2002, the station broke the story when federal officials shut down a Web site called "Candyman" with those existing laws.

The "Candyman" site was geared only toward trading child sex pictures and stories, just like the Yahoo! rooms.

"By doing what they're doing here with the advertising, this is endangering children and that's serious. I'm offended as a parent and I'm offended as a child advocate," Clickman said.

Sponsors around the country are reacting to what the investigation found.

The station called Pepsi for comment and the company quickly pulled its ads. A statement from Pepsi said, "We were completely unaware that our advertisements were associated with these chat rooms in any way."

Countrywide Mortgage pulled its ad for refinancing because of the investigation. The company said, "We took measures to ensure that a situation like this could not occur again."

State Farm Insurance also pulled its ads, not only from the chat room but also from all Yahoo! sites. The company said, "We will be suspending our online advertising with Yahoo! until it provides us a detailed explanation of how this situation was allowed to happen in violation of our contract, and until we receive sufficient assurance that our advertising will never again appear on inappropriate sites."

The same goes for Georgia-Pacific, maker of Brawny paper towels. Its ads were pulled, and a spokeswoman said Yahoo! admitted it did not adhere to the advertising contract with Brawny. The Troubleshooters found Brawny ads in a Yahoo! chat room called "6 To 11 Year Old Girls Into Older Men."

Another big sponsor, T-Mobile, did not respond to the station's request for comment.

"Yahoo! is aware of the situation now. They are put on public notice by (KPRC) and other people about what is taking place, and they need to come up with a solution to the problem unless they want the government to get involved and hold them liable, either civilly or even criminally, for these types of activities," Poe said.

Online ads just pushed Yahoo!'s income to more than double what it was a year ago -- up to $205 million.

Yahoo! executives declined to answer the stations' questions but issued a statement saying, "Yahoo! strongly supports law enforcements' efforts to combat illegal activity on the Internet and works cooperatively with law enforcement to aid in their investigations."

The statement also said Yahoo!'s terms of service do not allow illegal activities, but those same child sex chat rooms are being hosted by Yahoo!.

The lawsuit against Yahoo! accuses the company of capitalizing on child pornography when it hosted the Candyman site, and with the other sites like the ones the station found still in action.

The lawsuit by the family of one child porn victim said Yahoo! could have removed the sites, but instead chose to make money on them.