In 2018, the government seized nearly all the assets of former Backpage owners Michael Lacey and Jim Larkin, as well as assets of two co-defendants. And what the government took, it wants to keep.
This post repurposes recent Twitter/X reports from the #BackpageTrial in Phoenix’s Sandra Day O’Connor U.S. Courthouse. For regular updates, please follow the writer @stephenlemons.
On Thursday morning in Phoenix’s federal court, there was a 40-minute hearing before Judge Diane Humetewa in the Backpage case, minus the presence of the jury. The topic? The potential struggle between the prosecution and the defense over millions of dollars that the government seized shortly before the FBI took down Backpage.com on April 6, 2018.
Humetewa dismissed the jury on Wednesday due to a COVID outbreak in the courtroom. The jury heard the defense’s summations and the government’s rebuttal. They’re scheduled to be back on Tuesday, Nov. 7, to begin deliberations in this nearly six-year-long prosecution, in which the government seeks to hold five employees and execs and owners of the company criminally liable for “facilitating” state prostitution offenses in violation of the U.S. Travel Act.
The government seized assets from newspapermen Michael Lacey and Jim Larkin, as well as from co-defendants Jed Brunst and Scott Spear. Larkin committed suicide shortly before trial, and the court dismissed the indictment against him. The fate of his assets remains uncertain. If Spear, Brunst, and Lacey are found guilty on any counts, forfeiture proceedings will follow the reading of the verdicts.
Andrew Padilla, Joye Vaught, and their attorneys were not present, as the government apparently doesn’t have any of their assets or has decided not to pursue any of their assets. Padilla and Vaught were simply salaried employees of the company. They were charged in order to force them to roll on the others. Unlike the government’s star witness, Backpage founder Carl Ferrer, they declined to do so and now are being punished for their honesty by federal prosecutors.
(As part of his plea deal, Ferrer got to keep his mansion, his speedboat, his Mercedes, and he has access to some other assets.)
Lacey and Larkin were the majority owners of Backpage before selling it to Ferrer in 2015; Brunst and Spear held small percentages of the company.
It’s important to note that Lacey and Larkin didn’t have any money when they started out in the newspaper business in the early 1970s. Lacey actually gave blood to keep the fledgling weekly — what became Phoenix New Times (PNT) — afloat. Larkin had a family and worked as a waiter.
The company didn’t begin to make money for several years. After PNT began to turn a profit, Lacey and Larkin grew the business into a chain of 17 or 18 papers known as Village Voice Media (VVM). In 2012, they sold the newspaper chain to company insiders in the same kind of seller-financed deal that the government now calls “a sham” in connection with the sale of Backpage.
In 2018, the government seized nearly all of their assets, even assets not from Backpage. Also, the government ganked more than $10 million from trust accounts maintained by the defendants’ lawyers. This forced several attorneys to abandon the case, and three defendants now have attorneys who are paid by the court.
Most of the assets were seized through federal courts in California. That civil litigation is currently on hold till the completion of the criminal trial in Phoenix.
In the criminal case, the government listed forfeiture counts in its superseding indictment, and, if there’s a guilty verdict, it falls to the criminal court to be the arbiter of at least some of these assets. Think of it as a Venn diagram. There is a significant overlap of the civil and criminal forfeiture allegations.
If Lacey, Brunst, and Spear are found not guilty on all counts, the fate of most of their assets likely reverts to federal court in California. If there is a conviction, the defendants have asked the court to hold over the jury for a mini-trial on the forfeiture allegations (instead of leaving it solely to the judge).
At the hearing, the government agreed that the defendants had the right to ask for the jury be held over for this purpose. If necessary, the jury will determine if the government proved, by a preponderance of the evidence, a “nexus” or connection between assets and the offense.
But Humetewa seemed skeptical about holding the jurors over, because the jury was promised it would be finished by Nov. 9. The judge said she could poll the jury after the verdict and see if they could stay on a little longer. But if the jurors cannot do so, it would mean impaneling another jury and that is problematic for a number of reasons.
Humetewa then asked the government if it had filed its proposed jury and verdict instructions on the forfeiture matter. Speaking for the government, prosecutor Andrew Boyle told the judge that the government just filed new, revised instructions the night before. And boy did the *ish* hit the proverbial fan. Humetewa was pissed.
“It’s astounding to me the type of delay that’s gone on in this case,” she told the prosecutors. “You’ve had this case since 2018, and you tell me (about the revisions) only last night?”
She continued: “It’s beyond me. I don’t know what causes this. When you have these kinds of mistakes it creates extra work for everyone . . . I’m at a loss for words.”
You could almost hear the government attorneys gulp in unison. Humetewa ordered the defense to review the revised documents and file a redlined version. Then the prosecution will file a response. Humetewa then adjourned till 9 a.m. Tuesday.
So, we have a little break before the jury’s back on Nov. 7 to begin deliberations. Whether you are an atheist, an agnostic, or a believer, please say a prayer, burn incense, chant, whatever you do to celebrate the divine, and plead for my friends, the defendants. None of them deserve to go to prison.