Federal Prosecutors’ New Backpage Indictment: Heavy On Charges, Light On Evidence

Photo of Michael Lacey and Jim Larkin, wearing sport coats, outside federal court in downtown Phoenix, Arizona.
Veteran newspapermen Michael Lacey (left) and Jim Larkin outside federal court in downtown Phoenix in April 2018 (photo by Stephen Lemons)
Federal prosecutors filed a new, "superseding indictment" in the Backpage case, doubling down on their presumption of guilt on the part of Michael Lacey, Jim Larkin, and the other defendants

Federal prosecutors in Phoenix recently filed a  new, superseding indictment against seven former owners and executives of the online listings giant Backpage.com.

Dated July 25, the complaint largely reprises the dozens of allegations that formed the basis of the original indictment, which was submitted under seal in U.S. District Court on March 28.

But with the new filing, two of the defendants — former Backpage co-owner Michael Lacey and John “Jed” Brunst, the now-defunct company’s CEO — face additional charges. (Lacey and his longtime business partner Jim Larkin, the cofounders of Front Page Confidential,  sold Backpage in 2015.)

Federal authorities charged Lacey with six new counts of money laundering. Brunst faces 51 new charges related to conspiracy and facilitating prostitution.

As was the case with the initial complaint, the superseding indictment contains no charges of sex trafficking — despite continued claims from politicians and activists, unsupported by credible evidence, that Backpage was an online nexus for this professed pandemic.

Unlike prostitution, which involves commercial sex between consenting adults and is normally prosecuted locally, federal statute defines “sex trafficking” as commercial sex involving minors, or involving adults through force, fraud, or coercion.

The ongoing public hysteria over sex trafficking — a crime that the government’s own statistics show to be uncommon — led this past spring to the Fight Online Sex Trafficking Act (FOSTA), which created a new felony statute for the crime of “promoting” or “facilitating” prostitution online.

In theory, at least, the law made it easier for the federal government to hold websites accountable for profiting from the illegal sex trade.

In fact, FOSTA has led to a wave of fear and self-censorship online and outrage among sex workers.  But President Trump did not sign FOSTA into law until April 11 — five days after the government seized Backpage. The case against the site’s former operators does not reference the new law. Instead, the feds used the Travel Act, under which each count of facilitating prostitution could cost the defendants up to five years in prison. Penalties for the money-laundering counts are even more severe — up to twenty years behind bars apiece.

A week after the April arrests, prosecutors announced that Carl Ferrer, the CEO of Backpage who had purchased the site in 2015, had pleaded guilty to federal and state charges of conspiracy and money laundering in a deal to testify against his erstwhile colleagues.

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)

The government has made no secret that it is gunning for Lacey and Larkin, the two veteran newsmen who founded the Phoenix New Times in 1970 to vent their outrage over the Vietnam War. From that humble genesis, the business partners built a coast-to-coast empire of alternative weeklies. At its mid-2000s height, the chain comprised seventeen papers nationwide, including the venerable Village Voice and LA Weekly.

Lacey and Larkin sold the chain (since renamed Voice Media Group) to company executives in 2012, effectively separating it from Backpage, which they’d constructed in 2004 as a competitor to online classified giant Craigslist.  At that time, Craigslist had decimated the classified-advertising market that weeklies relied on for revenue.

Lacey and Larkin no longer own Backpage, either. But that didn’t stop the FBI from raiding their homes at gunpoint, freezing their assets, and holding them for a week before they were arraigned and released on $1 million secured bonds. The government is also attempting to have their attorneys removed from the case.

“Mike Lacey will enter a plea of not guilty and firmly maintains that he has broken no federal laws and plans to strongly defend these charges.” –Paul Cambria, attorney for Michael Lacey

The current federal case doesn’t exist in a vacuum. It follows more than half a decade of legal actions — some at the state level, others federal — in which courts have repeatedly found that Backpage operated in compliance with applicable First Amendment law, specifically Section 230 of the Communications Decency Act of 1996.

For that matter, the prosecution’s account of Backpage executives’ early attempts to grow their company reads like a description of aggressive capitalism in action.

Company executives encouraged employees to sway customers away from “rival websites” by allowing them to advertise for “a free trial period.”  They “paid bonuses” to the employees if they succeeded.

Internally, the company referred to such activity as “the Dallas plan,” and “content aggregation.” The latter is a common tool used by websites, marketers, and even journalists. In this case, the government contends that the term was applied to sales associates offering free ads to prospective clients.

The tactic worked so well in Dallas that Backpage execs created a “blueprint” for “moving that process to other cities” — a step the average entrepreneur might regard as a shrewd business decision.

What could make such stratagems illegal? The assumption that everyone who advertised in  Backpage’s adult section was guilty of prostitution. And in fact, the complaint presumes that Backpage’s adult listings were “blatant prostitution ads” that “obviously” involved illicit sex work.

That assumption, however, is not one that courts historically have permitted police and prosecutors to make.

In 2015, for example, Seventh Circuit Appeals Court Judge Richard Posner, writing in favor of Backpage in its lawsuit against Sheriff Tom Dart of Cook County, Illinois, observed that Backpage’s adult section covers a lot of ground in terms of sex-related activities, much of it quite legal.

color photo of criminal defense attorney Paul Cambria in suit and tie
Paul Cambria, attorney for former Backpage.com co-founder Michael Lacey, speaking to reporters outside Phoenix’s federal courthouse in April 2018 (photo by Stephen Lemons)

Posner cited examples — fetishism, phone sex, striptease, the services of a professional dominatrix — that in many cases did not cross into illegality. “[N]ot all advertisements for sex are advertisements for illegal sex,” he noted, and, at another point, “not every employee of a brothel is a sex worker.”

The three-judge panel ruled that Dart had violated the First Amendment by threatening credit-card companies with possible money-laundering charges if they didn’t stop processing Backpage transactions.

The court ordered Dart to cease and desist. But the sheriff’s threat worked: Visa, MasterCard, and other companies cut ties with Backpage.

Prosecutors now allege that Backpage executives attempted to get around the moratorium by using alternative means of payment such as Bitcoin, prepaid credit cards, and third-party shell companies, which the government claims amounts to money laundering.

In January 2017, Backpage closed down its adult section — one of many on a site that featured everything from garage sales to rooms for rent — on the eve of a U.S. Senate hearing into the company’s business practices. (Craigslist had done away with its adult section in 2010 under similar government pressure.)

The U.S. Department of Justice appears unimpressed by the move.

As described in the superseding indictment, activities performed by Backpage representatives that might otherwise seem civic-minded — testifying against pimps in criminal cases, meeting with attorneys general in various states, sending reports of suspected sex trafficking to the National Center for Missing and Exploited Children (NCMEC), and giving a presentation to the Arizona Human Trafficking Council — become evidence of guilt.

Same goes for Backpage’s moderation practices, which the company revised considerably over the years, using human monitors, software, or a combination of both.

The prosecution contends, for instance, that the practice of editing out terms such as “Lolita,” “young,” “teen,” and “GFE” (an abbreviation for “Girlfriend Experience”) constitutes proof that Backpage knew prostitution and underage sex trafficking were rampant on the site. The list of banned terms at one point grew to more than 660 words and phrases.

But as Richard Posner would be quick to point out, not all “Lolitas” are twelve years old. People lie about their age (not to mention their weight and their hair color) all the time, both online and off.

“With the addition of Travel Act charges against Mr. Brunst, the Government has further unjustifiably damaged the reputation of a good man. There is not a single piece of evidence that supports a Travel Act charge against Mr. Brunst, and there won’t be, because he is innocent.” — Gary Lincenberg, attorney for John “Jed” Brunst, former Backpage CFO

The trial in this dystopian drama is scheduled for January 15, 2020. At an August 10 arraignment on the new charges, Lacey and Brunst entered pleas of not guilty.

Contacted in advance of the hearing by Front Page Confidential, attorneys for both men vowed their clients would fight on.

“Mike Lacey will enter a plea of not guilty and firmly maintains that he has broken no federal laws and plans to strongly defend these charges,” said Lacey’s lawyer Paul Cambria, via email.

In an emailed statement, Brunst’s attorney Gary Lincenberg said the tacked-on charges “further unjustifiably damaged the reputation of a good man,” adding that there is no evidence to justify the allegations.

Lincenberg added a plea to the public with respect to Brunst:

“We hope the community will withhold judgment until he has an opportunity to prove his innocence.”

Superseding Indictment in U.S. v. Lacey, Larkin, et al. (filed July 25, 2018):

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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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