Feds Flip Ferrer: Backpage Owner and CEO Carl Ferrer Cops Plea to Federal and State Charges

video screenshot of former Backpage.com owner and CEO Carl Ferrer at a 2017 hearing of the U.S. Senate's Permanent Subcommittee on Investigations
Former Backpage CEO Carl Ferrer during his appearance at a U.S. Senate hearing in January 2017. Ferrer has pleaded guilty to conspiracy and agreed to testify for the federal government (screenshot via Permanent Subcommittee on Investigations)
In the latest development in the Backpage case, owner and CEO Carl Ferrer will plead guilty to state and federal charges and may testify on the prosecution's behalf

If you didn’t know that the Backpage case was about online classified advertising, you might think the U.S. Department of Justice was mounting a prosecution against the Mafia.

Late on Thursday, the DOJ announced that it has turned Backpage CEO Carl Ferrer, who secretly agreed on April 5 to plead guilty to a single charge of conspiracy, punishable by a maximum $250,000 fine and up to five years in prison. As part of the now-unsealed agreement, Ferrer has pleaded guilty to charges that were pending in California and Texas and pledged to help the DOJ dismantle the Backpage apparatus and confiscate its money, as well as testify against his erstwhile colleagues.

Ferrer’s plea deal is attached to a DOJ press release that paints Backpage — which once hosted millions of rental listings and garage sales, in addition to adult ads — as a societal scourge on par with the Sinaloa drug cartel.

U.S. Attorney General Jeff Sessions took a break from demonizing undocumented housecleaners and gardeners to lend a quote to the announcement.

“For far too long, Backpage.com existed as the dominant marketplace for illicit commercial sex, a place where sex traffickers frequently advertised children and adults alike,” Sessions stated. “But this illegality stops right now.  Last Friday, the Department of Justice seized Backpage, and it can no longer be used by criminals to promote and facilitate human trafficking.”

The comment is most notable for the fact that last week’s 93-count indictment against current and former Backpage employees and executives didn’t charge any of the seven named defendants with sex trafficking (or, for that matter, human trafficking). The defendants face multiple counts of money laundering, conspiracy, and facilitating prostitution, a violation of the 1961 Travel Act.

As Sessions likely knows, sex trafficking is a far more serious crime than prostitution, punishable by up to life in prison.

Prostitution is consensual commercial sex between adults. Sex trafficking is defined under federal law as occurring when“a commercial sex act is induced by force, fraud, or coercion, or [when] the person induced to perform such act has not attained eighteen years of age.” (For those who really like wading through the weeds, human trafficking involves either forced labor or forced sex work, though you never hear politicians like Sessions talking about forced labor. Not…sexy enough.)

Prostitution is usually treated as a state crime and left to localities to prosecute, though earlier this week President Donald Trump signed into law the Fight Online Sex Trafficking Act (FOSTA), essentially nationalizing the criminality of prostitution.

Though Congress Frankensteined FOSTA expressly to go after Backpage, the new law was not needed to indict Backpage’s current and former owners and executives. Among the seven defendants are veteran newspapermen Michael Lacey and Jim Larkin, the former executive editor and CEO, respectively, of the Village Voice Media chain of alternative weeklies, which the pair sold to company insiders in 2012.

On April 6, the FBI seized Backpage and raided Lacey’s and Larkin’s homes. When the indictment was unsealed, Ferrer’s name was conspicuously absent, though he was referred to throughout the document by his initials, which led to speculation that the feds had flipped him.

The seven defendants have pleaded not guilty to all charges.

Ferrer, Lacey, and Larkin developed Backpage in 2004 as a challenge to Craigslist, which by that time had obliterated classified ads as a revenue stream for newspapers by providing most of them for free. Both sites featured ads for cars, houses, and yard implements for sale, as well as an adult section containing listings that numerous courts have deemed legal.

In 2010, Craigslist bowed to government pressure and shuttered its adult-services section. Backpage was the beneficiary. Adult ads migrated to the website, spiking the company’s revenue. Lacey and Larkin sold the company to Ferrer in 2015 for $600 million in a seller-financed deal. Backpage shut down its own adult section in 2017, also as a result of government intimidation.

In his plea agreement, Ferrer regurgitates the government’s theory of the case, claiming that he had “long been aware that the great majority of these advertisements are, in fact, advertisements for prostitution services.” He states that he “conspired with other Backpage principals…to find ways to knowingly facilitate the state-law prostitution crimes being committed by Backpage’s customers.”

Ferrer further asserts that he and his “co-conspirators” created moderation practices in order to “remove terms and pictures that were particularly indicative of prostitution” and create a “veneer of deniability for Backpage.”

When credit-card companies declined to process payments for ads on Backpage, Ferrer states, he worked to “fool” the companies into thinking the payments were being made to different business entities. The plea also mentions the use of “cryptocurrency-processing companies” to accept the transactions.

The statement ignores Backpage’s extensive history of largely successful litigation. For instance, MasterCard and Visa stopped taking Backpage transactions in response to a letter from Cook County, Illinois, Sheriff Tom Dart, who threatened the companies with possible legal action and warned them that by accepting Backpage transactions, they were in violation of the very same federal money-laundering statute under which Lacey and Larkin are now charged.

Backpage sued Dart in self-defense, seeking a preliminary injunction against the sheriff, and won in a decision from a three-judge panel of the Seventh U.S. Circuit Court of Appeals. Writing for the panel in 2015, Judge Richard Posner (who has since retired) deemed Dart’s action a blatant First Amendment violation. Posner cited Section 230 of the Communications Decency Act of 1996, which until FOSTA’s recent passage shielded interactive platforms from liability for content posted by users.

Wrote Posner: “Backpage is an intermediary between the advertisers of adult services and visitors to Backpage’s website.”

Even without Section 230, Posner acknowledged, Backpage has First Amendment rights. Dart, he wrote, was “violating the First Amendment unless there is no constitutionally protected speech in the ads on Backpage’s website — and no one is claiming that.”

The judge noted that “not all advertisements for sex are advertisements for illegal sex,” and that a wide range of sex work is legal, including striptease and various fetishes.

While Ferrer is pleading guilty to money laundering in California, his unsealed agreement makes no mention of the fact that the California Attorney General’s Office twice brought pimping charges against him, Lacey, and Larkin, and twice had those charges dismissed by Sacramento County Superior Court judges who cited Section 230.

Moreover, the very moderation efforts that Ferrer and the feds now offer as evidence of a conspiracy have been mentioned in rulings favorable to Backpage. In an August 2017 ruling dismissing the pimping charges against the trio for the second time, Sacramento County Superior Court Judge Lawrence G. Brown found that “such actions generally fall within the scope of protected editorial functions.”

At one point, Ferrer and his employees were working from a list of hundreds of forbidden words, according to documents published in 2017 as part of the U.S. Senate’s investigation of Backpage — a probe from which the U.S. Attorney’s complaint repeatedly cribs.

Though the indictment (and many media stories) point to the editing of such terms as “Lolita,” “cheerleader,” and “teen” as proof that Backpage had knowledge that the site was being used for sex trafficking (or prostitution, at the very least), those words are open to interpretation.

And while the authors of Section 230 intentionally wrote in a “Good Samaritan” provision to encourage website operators to screen out offensive or illegal content, the statute made it clear that engaging in content moderation did not mean a website was required to censor every single post that might be objectionable.

As technology-law expert Eric Goldman repeatedly has pointed out in testimony to Congress and on his respected Technology & Marketing Law Blog, Section 230 was crafted to eliminate the so-called Moderator’s Dilemma, which forced online services to “choose between two strategies: (1) exercise full editorial control over user content and accept liability for whatever legally problematic content they miss, or (2) minimize potential liability by exercising no editorial control over user content.”

Of course, Section 230 never has immunized websites from federal prosecution, and if they are found guilty, Lacey, Larkin, and several of the other defendants could spend the rest of their lives in jail.

That means the only thing that now stands between them and likely prison terms is the First Amendment.

See Also:
“Attorney for Ex-Backpage Owner Michael Lacey: “He’s a fighter. He’s a First Amendment guy.”

“Federal Backpage Indictment: Bloated with Familiar Bluster; No Sex-Trafficking Charge”

“Feds Seize Backpage, Arrest Former Owners in Act of Direct Government Censorship”

About Stephen Lemons

Stephen Lemons is an award-winning investigative journalist with more than 20 years of experience covering everything from government corruption to white-supremacist gangs. In addition to Front Page Confidential, his work has appeared in Phoenix New Times, the Los Angeles Times, Salon.com, and the Southern Poverty Law Center’s Intelligence Report magazine.

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