By Nathan Solis/Courthouse News
(CN) – Federal prosecutors have charged the creators of the website Backpage.com, one of the largest web forums for classified ads, with facilitating prostitution and conspiracy to launder money in a 93-count indictment unsealed Monday in Arizona.
Backpage’s creators Michael Lacey, 69, and James Larkin, 68, both of Paradise Valley, Arizona, face the charges along with five other defendants.
On Friday, a notice appeared on Backpage.com saying it had been seized as part of an enforcement action by the FBI, U.S. Postal Inspection Service and the Internal Revenue Service.
According to the indictment, Backpage.com was created by Lacey, Larkin and a third individual, referred to as C.F.
The website’s chief executive, Carl Ferrer, is not named in the indictment.
From 2004-2015, Lacey and Larking oversaw the policies and strategic direction of the website. Despite claiming they sold their interests in 2015, Lacey and Larkin continue to receive tens of millions of dollars of Backpage-related distributions.
Backpage says it bars customers from offering illegal services and periodically used “computerized filters” and human moderators to edit wording of ads that explicitly offered sexual services in return for money.
Federal prosecutors say that’s false and that defendants acknowledged in internal company documents and during private meetings that they were aware of the prostitution being offered on the website.
Lacey even bragged about their contributions to the industry.
“Backpage is part of the solution. Eliminating adult advertising will in no way eliminate or even reduce the incidence of prostitution in this country,” Lacey said, according to the indictment. “For the very first time, the oldest profession in the world has transparency, record keeping and safeguards.”
Another defendant, Andrew Padilla, 45, of Plano, Texas, threatened to fire any employee who acknowledged the “escorts” depicted on the website were prostitutes.
“Leaving notes…implying that we’re aware of prostitution…is enough to lose your job,” Padilla said, according to prosecutors.
One company memo simply read, “Do not acknowledge the prostitution.”
Many of the advertisements on Backpage showed children who were victims of sex trafficking, according to federal prosecutors. Backpage’s policy when they found such advertisements was to remove any reference to the child’s age.
“Such editing, of course, did nothing to change the fact the ad featured the prostitution of a child – it only created a veneer of deniability and helped Backpage’s customers (i.e. pimps trafficking children) evade detection,” prosecutors say in the indictment.
Prosecutors say “virtually every dollar” that flowed into Backpage represented the proceeds of an illegal activity.
When major credit card companies stopped processing payments from the website the defendants began to pursue other methods to launder money, including having customers send checks and money orders to post office boxes and depositing the payments in bank accounts held in the name of entities which had no apparent connection to Backpage. Customers were given “credit” to purchase new ads, according to prosecutors.
Backpage also wired the proceeds from its business account to bank accounts held in foreign countries and then redistributed the money back to defendants or into bank accounts in the United States.
Prosecutors say in November 2016, Lacey asked an employee of an Arizona-based bank for advice on how to move his assets “offshore” to protect from the seizure by the federal government. Soon after, $16.5 million in Backpage-derived cash was wired from Lacey’s bank account to an overseas account in Hungary, according to the indictment.
Lacey and Larkin are former owners of the Village Voice and the Phoenix New Times, but retained ownership of Backpage.com, according to the Associated Press.
In 2017, they were charged with money laundering in California.
A decade ago, they were arrested by then-Maricopa County, Arizona, Sheriff Joe Arpaio’s office for publishing information about a secret grand jury subpoena for information on its stories and online readers.
They won a $3.75 million settlement from the county as a result of their now-discredited arrests.
Also named as defendants in the indictment were Scott Spear, 67, of Scottsdale, Arizona; John E. “Jed” Brunst, 66, of Phoenix, Arizona; Daniel Hyer, 49, of Dallas, Texas and Jaala Joye Vaught, 37, of Addison, Texas.
Charges range for the defendants and include suspicion of conspiracy, facilitation of prostitution under the Travel Act, conspiracy to commit money laundering, concealment money laundering, international promotional money laundering, transaction money laundering and forfeiture allegations.
The criminal case is being prosecuted by assistant U.S. Attorneys Kevin Rapp, Dominic Lanza, and Margaret Perlmeter of the District of Arizona and senior trial attorney Reginald E. Jones of the Criminal Division’s Child Exploitation and Obscenity Section.
Assistant U.S. Attorney John Kucera of the Central District of California is handling the asset forfeiture aspects of the case.
An email seeking comment has been sent to Lacey’s attorney of record.