Backpage jury finds veteran newspaperman Michael Lacey guilty on one count, two execs guilty on multiple counts, and two worker bees not guilty on all.
The following opinion piece reflects the views of the author and no one else.
It was dusk on Thursday, Nov. 16 as the five Backpage defendants and their attorneys filed out of the steel-and-glass doors of the Sandra Day O’Connor U.S. Courthouse in downtown Phoenix. Some lingered to talk, spurning (mostly) the queries of the few reporters present.
After eleven weeks of trial, everyone was spent, including the jurors, who exited a little before the defendants. I walked beside one male juror who looked shell-shocked. He told me that it was the hardest thing he’d ever had to do, that the laws were poorly written, and that the jury instructions were confusing.
Which is not surprising. During their deliberations, the jurors sent multiple questions to Judge Diane Humetewa concerning the underlying allegations, which claimed the defendants had conspired — via the operation of the classified listings site Backpage.com — to facilitate business enterprises involved in state prostitution offenses in violation of the U.S. Travel Act.
On Nov. 14, two members of the jury sent a note to Humnetewa, informing her that they were deadlocked on all but one charge. She brought the jury in and read them an “Allen instruction,” also known as a “dynamite charge,” which encourages jurors to deliberate further and attempt to reach unanimity.
The dictate is controversial in some quarters, with critics arguing that it could be perceived as coercive.
Two days after the Allen admonition, the jury returned a mixed bag of a verdict: the government’s primary target, veteran newspaperman Michael Lacey, was found guilty on one count of “international concealment money laundering” and not guilty on a separate money laundering count.
The government had charged the 75-year-old writer, journalist, and editor on 84 additional counts. The jury was hung on all of them.
Humetewa declared a mistrial on those 84 counts, the second time a judge has granted a mistrial in the case. The first mistrial occurred in 2021, after just three days of testimony due to prosecutorial misconduct, which has been a running theme since the indictment dropped in April 2018.
Two former executives of Backpage’s parent company, chief financial officer Jed Brunst and vice president Scott Spear were convicted on multiple counts: Spear, 72, caught guilty verdicts on 18 Travel Act counts, one count of conspiracy, and more than 20 money laundering counts. Brunst, 71, was found guilty on one conspiracy count and more than 30 money laundering counts.
The jury’s verdicts with respect to Brunst, Spear, and Lacey are disappointing. But the prosecution was relentlessly duplicitous, and the jury was hampered by what it did not get to see or hear: exculpatory evidence that the prosecution successfully precluded, destroyed, or failed to make available to the defense.
There was some justice done, however bittersweet. The jury found two salaried employees of Backpage, Andrew Padilla and Joye Vaught, not guilty of the 51 charges stacked against each of them.
The government roped in these two, hoping that the stiff prison terms they faced would make them turn against the others.
But Vaught and Padilla rejected the relatively sweet plea offers they received: Vaught was offered a walk-away deal with all charges eventually dropped; Padilla was offered a plea that likely would’ve meant no jail time.
But they were unwilling to sing from the government hymnal at trial.
During a recent hearing before Humetewa, Vaught’s attorney Joy Bertrand explained her client’s reaction to a plea offer from the government requiring her to testify against the others.
Vaught told her lawyer, “I’m not going to lie to save my skin.”
Vaught and Padilla were made of sterner stuff than their former boss, Backpage creator Carl Ferrer, who turned state’s evidence in return for a lucrative plea deal that allowed him to keep some of his assets.
The irony, of course, is that if Ferrer had held his ground, the government would not have been able to bring an indictment, much less obtain convictions.
Now, Padilla and Vaught, two courageous worker bees, who helped implement Backpage’s extensive moderation practices and its policy of cooperation with law enforcement, are bruised and battered, but without felonies against their names.
On the plaza that Thursday, with rain drizzling upon those loitering post-verdict, I watched as some of the jurors, having evaded annoying reporters, returned to the plaza, as if they were reluctant to leave a place where they’d spent over two months focused on the interrogations of witnesses and the arguments of attorneys.
A handful of jurors approached Padilla and Vaught, who were standing next to each other. They shook the hands of the acquitted and told them they admired their bravery. Padilla and Vaught thanked them. One juror embraced the pair.
Though the jury was not privy to all of the facts, and though the prosecution lied without consequence, the jury knew an injustice had been done with regard to Vaught and Padilla.
Padilla and Vaugt’s lives have been trampled. And in them, the jury could say, “There but for the grace of God go I.”
The Travel Act counts, and the related conspiracy count, carry maximum sentences of five years each. The money laundering counts could fetch a maximum of 20 years each.
And Spear, Brunst, and Lacey are not young men.
The charge of “international concealment money laundering” makes Lacey sound like an eyepatch-wearing Bond villain playing baccarat in Monte Carlo.
But according to the trial testimony of Scottsdale attorney John Becker, Lacey was up against a wall in 2017. American banks were refusing to do business with the ex-alt-media mogul due to something called “reputational risk.”
Though Lacey and his longtime business partner Jim Larkin sold Backpage in 2015 to Ferrer, politicians were still demanding Backpage’s downfall, and Lacey and Larkin’s names were closely associated with the company.
You may recall that Kamala Harris, in the runup to her 2016 election to the U.S. Senate, had Lacey, Larkin, and Ferrer arrested on “pimping” charges, putting them on display in orange jumpsuits inside a cage in a California courtroom.
The pimping charges were soon thrown out, but Harris refiled them just before leaving for D.C. The new pimping charges would meet the same fate, but not before Lacey, Larkin, and other Backpage principals were hauled before a U.S. Senate subcommittee, where they refused to testify based on their rights under the Fifth and First Amendments.
Lacey and Larkin had little choice, as the second round of bogus pimping charges were still pending in California.
Nothing scares the bejesus out of a bank president more than the words “U.S. Senate.” No wonder American banks were turning Lacey away.
Becker testified that he advised Lacey to look for a bank in another country. Becker and Lacey consulted a Los Angeles attorney whose expertise was offshore accounts. It was decided to transfer the money — nearly $17 million in trust for Lacey’s sons — to a financial institution in Hungary.
Becker’s testimony made clear that, exotic as it may sound to the uninitiated, there’s nothing illegal about having a foreign bank account. Lacey was not under federal indictment. That would not take place until April 2018. The money had not been seized. Backpage was a legal entity, now in Ferrer’s hands.
Becker did everything by the book, informing the IRS of Lacey’s foreign account on a yearly basis by filing an official form known as an FBAR, or, Report of Foreign Bank and Financial Accounts.
In emails to Becker, Lacey made clear that he wanted the transfer done legally and all taxes paid. Lacey was never charged with income tax evasion. The bank account in Hungary was listed on his tax returns.
There was no “concealment.” Why then did the jury convict Lacey on this count?
Well, the government made every effort to depict the transaction as illicit. And no doubt for many people, moving money abroad looks suspicious on its face, regardless of its legality. Not to mention, $17 million is a staggering amount for the average person.
Sex workers, even those engaged in legal sex work, understand all about banks not wanting to do business with them. And though it’s becoming more common for average Americans to fall victim to “reputational risk,” jurors may have looked askance at the fact U.S. banks didn’t want to hold Lacey’s $17 million for him.
There’s another issue: Jurors were precluded from hearing the full tale of how, in 2015, Mastercard and Visa stopped processing Backpage’s transactions because Sheriff Tom Dart of Cook County, Illinois wrote both companies a threatening letter, telling them they might be breaking the law by taking Backpage’s business.
Backpage sued Dart, and the 7th Circuit Court of Appeals sided with Backpage. The adult ads on the site could be for lawful adult services, the court ruled, and Dart didn’t get to presume otherwise. His letter was a First Amendment violation, and the court ordered him to withdraw it.
But the damage was done. The credit cards vamoosed for good, and Backpage was left scrambling to find alternatives: money orders, Bitcoin, gift cards, etc. These are all legal forms of payment. Prosecutors painted the situation as Backpage’s “credit card apocalypse,” telling jurors that credit cards and banks were wary of Backpage because the company was breaking the law.
Not true. It was Dart’s unconstitutional threat that caused the “credit card apocalypse.”
Defense attorneys were only allowed to generally allude to Dart’s threat, and prosecutors successfully blocked any mention of the 7th Circuit decision, or any of Backpage’s many wins in federal and state courts, holding that Backpage’s publication of third-party speech was protected by Section 230 of the Communications Decency Act and the First Amendment.
Defense attorneys were not allowed to mention: Section 230, the advice the defendants received from Backpage’s attorneys that the site was operating legally, or the many court rulings holding that Backpage was operating within the law.
All of this went to the defendants’ “state of mind.” They had no intent to violate the law. On the contrary, Backpage helped law enforcement and answered subpoenas within 24 hours.
Importantly, the defendants believed the First Amendment shielded Backpage’s publication of facially lawful speech. But prosecutors prevented the defense from making such arguments.
The Tall Nail
I once asked Larkin why Lacey had more charges against him than the other defendants. After all, Lacey defended Backpage’s right to exist and wrote and edited articles debunking sex trafficking myths, but Lacey had nada to do with the nuts and bolts of the operation.
“The tall nail gets hammered,” Larkin told me.
Indeed, as his attorney Paul Cambria pointed out more than once, Lacey is an “old newspaper guy,” a believer in the First Amendment, a lifelong rebel, who’s spent his life exposing police misconduct, corrupt prosecutors, and shady politicians such as John McCain and Joe Arpaio.
This entire prosecution has been about shutting Lacey up. The government wanted Lacey’s head on a pike even more than Larkin’s. The other defendants were merely collateral damage to prosecutors. Lacey’s co-defendants were charged to pump up this idea of a “conspiracy,” in the hope they would turn and testify for the prosecution.
Spear and Brunst’s money laundering convictions are bewildering, not just because both men are honest and reputable, straight arrows in the strictest sense.
Quoc Thai, a former IRS agent who investigated the money-laundering allegations, testified at trial about flow charts he created to describe the movement of money to and from different bank accounts. Thai said various holding companies were created to hide the source of the funds; i.e., Backpage.
Actually, there was no concealment and no “laundering.” From 2004 till 2012, Backpage was part of a chain of 17 alternative weeklies known as Village Voice Media (VVM). This was no secret. Anyone with internet access knew it. Backpage was controversial, and VVM very publicly punched back against Backpage’s critics.
In 2012, Lacey and Larkin decided to separate Backpage from the newspaper chain, selling the papers to a group of VVM execs. They made a public announcement, publishing it in all of their papers. The move was reported on by various outlets, including Reuters, the Arizona Republic, and New York Magazine.
In 2015, Lacey and Larkin sold Backpage to a Dutch holding company ultimately owned by Carl Ferrer. That Ferrer would continue to be Backpage’s CEO was reported in the Dallas Morning News. Backpage was — and still is — registered as an LLC in Delaware.
Under cross-examination by defense attorney Gopi Panchapakesan, Thai admitted that if he did a flow chart for Google paying another company for services rendered, it would basically look the same.
And in a report Thai helped create, only disclosed by the government after the jury began deliberating, one of the holding companies Ferrer created, Posting Solutions, had a P.O. Box under the heading “Posting Solutions/Backpage.” The P.O. Box’s contact person? Carl Ferrer.
Telling the Big Lie
Bizarre, too, are Spear’s Travel Act convictions. All five defendants were charged on 50 counts of violating the Travel Act through 50 ads for escorts, dating, and massage that once ran on Backpage, as well as one count of conspiracy to violate the Travel Act.
But only Spear and Brunst were found guilty on that conspiracy count, and only Spear was convicted on any Travel Act counts. Spear’s 18 counts were dated before the sale of Backpage to Ferrer in 2015. (Note: Spear and Brunst were minority owners of the company.)
Though the government called the seller-financed deal a “sham,” it clearly was not, nor did the jury buy this line, holding Spear responsible only for ads that ran before Ferrer acquired the company.
Neither Spear nor any of the other defendants saw any of the 50 charged ads. And yet, as the defense repeatedly pointed out, the Travel Act is a “specific intent” crime, meaning that, per the statute, one would’ve had to have specific intent “to . . . promote . . . or facilitate . . . any unlawful activity,” which is defined as “any business enterprise” involving certain illicit activities, such as prostitution.
The judge at the 2021 trial, Judge Susan Brnovich, wrote in a pretrial ruling that the defendants “were not indicted for facilitating the amorphous notion of prostitution’ . . . They were indicted for facilitating (via publishing ads) on fifty distinct occasions where prostitutes, prostitution-related businesses, or other groups were involved in the business of prostitution.”
She added, “To answer Defendants’ question posed to the Court: one cannot intend to promote/facilitate a business enterprise one does not know exists.”
How can Spear be held liable for ads and business enterprises that he knew nothing about? I don’t know the jury’s thought process, but I wonder if their decision was influenced by federal prosecutor Austin Berry’s rebuttal statement at the end of the trial, which directly contradicted Brnovich’s ruling.
Berry told jurors that “the defendants argue they had no knowledge” of these specific 50 ads, claiming that “these ads are just a sample.”
He said, “We’re not going to charge them with a million counts based upon the millions of ads” that appeared on Backpage. “That’s why there’s a conspiracy charge covering the statute, covering the 14-year life of the conspiracy . . . I’m not going to show you a jury instruction saying we must prove that any defendant had specific knowledge of these particular ads because it isn’t in there. We don’t have to do that.”
This is a falsehood within a falsehood. Not only does it negate the concept of “specific intent,” it also regurgitates a canard dear to the prosecution — that there was a conspiracy to facilitate prostitution from the site’s beginning in 2004.
But this assertion was given the lie by one of the government’s own witnesses, Backpage’s former sales director Dan Hyer, who, like his superior Ferrer, took a plea deal and agreed to testify. Though Hyer copped the government’s line that all adult ads on the site were prostitution ads, he gave a cogent account of how Backpage came to be.
In the 1990s, Hyer explained, print publications, like those in the chain then called New Times, Inc. (later, VVM) were still doing well. But by 2003/04, the chain’s papers were “hemorrhaging revenue” as print was “all going to the internet.”
Most classified advertisements were being hoovered up by Craigslist, which was giving away much of its ad space. Hyer said the internet was an “existential threat,” and VVM faced going under.
Eventually, VVM CEO Jim Larkin gave Ferrer $50,000 to build a competitor site to Craigslist, and Backpage was born as “an alternative to Craigslist,” Hyer said.
Backpage was not created to facilitate prostitution as the government contends. It was created to compete with Craigslist. If there was a “conspiracy,” it was a legal one, defined by this little thing we call capitalism
Once More Unto the Breach
This six-year-long prosecution, which actually stretches back farther if you include the Jan. 2017 Senate hearing that was the basis for the indictment, has been a costly one for the defendants and for the American people.
And it ain’t over yet.
The DOJ’s unhinged pursuit of Lacey and Larkin likely cost tens of millions of dollars, especially when you throw in the cost of a grand jury investigation, three court-appointed defense lawyers, and the 2021 mistrial.
Will the government retry Lacey on 84 counts? If so, add the cost of that to the price tag.
The following are pending before the court: a Rule 29 motion to acquit, which has been pending since before the lawyers for both sides made their closing arguments, and a motion to dismiss based on disclosure violations by the prosecution — late disclosures of witness statements and/or exculpatory material. Among these are the Thai document and emails from 2018 between Ferrer and government agents discussing a $4 million payment to one of Ferrer’s attorneys with supposedly “dirty” (according to the prosecution) Backpage money.
Also pending are the forfeiture proceedings, in which the government is seeking to keep the assets it has seized and score a judgment for even more money. Sentencing hearings may take place within the next couple of months.
After sentencing will come appeals, which could take two or three years. The court could allow the three men to stay out on bond. Or it could order them taken into custody.
I was expecting that Lacey, et al. might be taken into custody on Thursday of last week, especially after a squad of huge marshals filed into the courtroom just before the verdicts were read. Thankfully, that did not happen.
It would truly be a crime if Lacey, Brunst, and Spear have to serve prison sentences, no matter the length. These men are not criminals. The ads on Backpage were, on their face, legal, and therefore presumptively protected speech. At least, that’s the way it should be.
Consider this case’s body count, including the trafficked victims who will never be rescued because Backpage is past tense and all adult ads have migrated overseas, beyond the reach of U.S. law enforcement.
There are also the murdered sex workers, whose killers will never be brought to justice because Backpage isn’t around to assist in finding and convicting them.
And there is Jim Larkin, a tower of strength who took his own life, tormented by financial woes and the prospect of putting his family through yet another trial, with the prospects for vindication growing dimmer with each lie the government told about him.
The ancients practiced something called damnatio memoriae, in which the state attempts to erase evidence of a disfavored person’s existence, removing any mention of them from official documents, chiseling their names off memorials, etc.
It seems the U.S. government is trying something similar here with Lacey, Larkin, et al. Still, officialdom’s vindictiveness can backfire, creating causes célèbres and revealing the system to be hopelessly rigged against anyone who stands in opposition to state power.
I’ve never had many illusions about my government, though I held out some faith that ours was inherently more humane than, say, Putin’s Russia.
Perhaps it still is, but not by much and not for long.