In a 17-page order issued Dec. 10 in the Lacey/Larkin case, U.S. District Court Judge Diane Humetewa in Phoenix denied a defense motion requesting that the court release a fraction of the more than $135 million dollars seized by federal prosecutors from the defendants, their families and their attorneys in 2018.

In the face of a recent mistrial resulting from government misconduct in the case, defense attorneys argued they needed a portion of these monies released to prepare for a new trial, scheduled to start Feb. 9. They pointed to four categories of funds that the government had not traced to alleged illicit activity, asking Humetewa to partially vacate seizure warrants issued by federal magistrates in the Central District of California (CDCA).

Currently, litigation in the CDCA challenging the seizures  is stayed pending the outcome of the criminal case in Phoenix. The defense has warned the court that the private defense attorneys representing the Lacey/Larkin defendants are “under water,” and some counsel may be forced to withdraw due to lack of funds.

Still, Humetewa rejected the defense’s arguments, writing in her order that the defendants “have had and continue to have adequate avenues to argue for the return of their interests,” specifically in the CDCA.  As for defense complaints concerning lack of money, the defendants “have . . . not made the requisite showing of need to pay counsel.”

The judge wrote that the defendants “heavily dispute” whether they must “make a showing that they need funds to pay counsel before they can challenge the underlying lawfulness of the asset seizures in question.” Defendants “hang their hat on the contention that the funds are untainted,” but Humetewa concluded that “a showing of need is required.”

The defendants submitted documents regarding their financial need to the judge under seal, asking that the judge review them in camera. But Humetewa declined to do so, leaving open the door for the defense to ask for a “Monsanto hearing,” which refers to the 1989 U.S. Supreme Court decision in United States v. Monsanto. 

Humetewa wrote:

“The Monsanto court reasoned that the government could seize assets before trial that a defendant intended to use to pay for an attorney of his or her choice, so long as probable cause existed ‘to believe that the property will ultimately be proved forfeitable.'”

She added that “lower courts since then have generally provided a hearing to any indicted defendant seeking to lift an asset restraint to pay for a lawyer,” aka, a Monsanto hearing.

Quoting Ninth Circuit precedent, Humetewa wrote that a court, in evaluating a request for a Monsanto hearing, must evaluate whether “the moving papers filed, including affidavits, are sufficiently definite, specific, detailed and nonconjectural to enable the court to conclude that a substantial claim is presented.”

As a result, Humetewa refused the defense’s request, “without prejudice,” allowing the defendants to “move for a Monsanto hearing if they can make a prima facie showing that their net financial resources and income are insufficient to pay for counsel.”

Luis Does Not Apply

As is often the case with civil asset seizure, the defendants in the Lacey/Larkin case have not been convicted of a crime.

Rather, veteran newspapermen Michael Lacey and Jim Larkin (and their four co-defendants) have pleaded not guilty to up to 100 charges of conspiracy, money laundering and facilitating misdemeanor state prostitution offenses in violation of the U.S. Travel Act.

The defense has accused the prosecution of seizing all of Lacey and Larkin’s assets via courts in California (as opposed to here in Arizona) in an attempt to hamstring the defense financially and to make its job more difficult. A First Amendment challenge to these seizures in the CDCA ultimately was not successful.

The feds not only seized assets related to Backpage. Prosecutors seized assets derived from Lacey and Larkin’s over 40 years as the owners of more than 17 alternative weeklies across the country. The government also placed liens on Lacey and Larkin’s properties and seized more than $10 million set aside in special bank accounts to pay legal fees, forcing some defense attorneys to withdraw from the case early on.

Asset seizure is a controversial tactic that allows law enforcement to take possession of assets pre-trial (or even pre-arrest), forcing the owner to prove the assets did not derive from criminal activity.

Several U.S. Supreme Court rulings have attempted to rein in the practice. One of the most significant is the high court’s 2016 ruling in Luis v. United States, which held that the “pretrial restraint of legitimate, untainted assets needed to retain counsel of choice” violates a defendants’ Sixth Amendment right to an attorney.

In its motion to free certain categories of seized assets, the defense argued the government lacked probable cause because prosecutors failed to demonstrate that the assets in question were “traceable to the crimes alleged in the indictment or the civil complaint.”

In past filings, the government claimed anywhere from 90 to 94 percent of Backpage’s revenue was generated by allegedly-illicit ads, effectively conceding that 6 to 10 percent of Backpage’s income was for legal, non-adult advertising.

Moreover, during the trial in September, one of the government’s key witnesses, a California cop, undermined the government’s contention that the “adult” ads on Backpage for categories such as massage, escorts, dating and so forth were obviously for prostitution. The cop admitted he could not make an arrest for prostitution based on Backpage’s adult ads alone, and that the ads themselves were not illegal on their face.

As a result, the defense argued that some of Backpage’s assets, potentially millions, must be released.

But Humetwa disagreed with the suggestion that the Supreme Court’s decision in Luis “eliminated the requirement” that a defendant needed to ask for a Monsanto hearing for release of funds.

In Luis, Humetewa ruled, “there was no dispute” that the government’s freeze order prevented the defendant from using her own untainted funds to defend herself.

In the Lacey/Larkin case, however, Humetewa found that “the assets in question are presumably tainted,” in part because of the probable cause rulings of the California courts.

The millions seized from defense attorneys’ accounts? Those accounts, Humetewa found, had been forfeited as part of a plea agreement by former Backpage CEO and owner Carl Ferrer, who pled guilty to one federal count of conspiracy as part of a deal allowing him to maintin access to millions set aside for his own defense, in return for his testimony against the defendants.

Humetewa’s ruling leaves defense attorneys on the hook for the expense and effort of a new trial, unless they seek, are granted and receive a favorable outcome from a Monsanto hearing.

Meanwhile, the government’s of attrition in the Lacey/Larkin case continues its ceaseless slog.

ICYMI, please see:
Lacey/Larkin Defense Asks Judge to Release Portion of Illegally-Seized Assets
and
Prosecution, Defense in Lacey/Larkin Case Lock Horns over Motion to Dismiss for Double Jeopardy