Feds: Backpage.com made $500M from prostitution-related ads

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US Attorneys Office unseals Backpage indictment

According to court paperwork, the company provided guidance to employees on how to moderate ads to make prostitution ads look more like escort services, adult companionship or other lawful activities.

PHOENIX – The owners of the classified advertising site Backpage.com, who have already beaten some state charges in a separate California case, are now facing a federal indictment charging them with ignoring warnings to stop running advertisements promoting prostitution. Prosecutors contend some of the advertisements depicted children who authorities said were sex trafficking victims.

The charges against Backpage.com founders Michael Lacey and James Larkin include facilitating prostitution and money laundering. Their attorneys did not return phone calls seeking comment.

Five other company officials were also named in the federal indictment unsealed Monday, which charged that Lacey, Larkin and the others knowingly facilitated prostitution by running ads for sexual services and used foreign banks to hide revenues.

The indictment said the site contended it tried to prevent prostitution ads, but investigators determined that was not the case.

Backpage.com employees sought to help customers edit their ads to stay within legal limits while still encouraging commercial sex, prosecutors said. Photos and words that were indicative of prostitution were removed before such ads were run, according to the indictment.

"Nevertheless, the Backpage defendants made a financial decision to continue displaying those ads," the indictment said, noting the site has brought $500 million in prostitution-related revenues since its inception in 2004.

Federal authorities last week seized Backpage.com and its affiliated websites.

Last year, the website's chief executive Carl Ferrer, Lacey and Larkin were charged with pimping conspiracy and other charges in a case brought by state prosecutors in California.

But those charges were dismissed after a judge ruled in August that anything to do with the site's online publishing was protected by a federal law that grants immunity to websites that post content created by others. It's not clear how that ruling by a state judge will be viewed in the federal prosecution.

In any case, the judge also allowed the state of California to continue with 25 money laundering charges against Ferrer, Lacey and Larkin. The three have pleaded not guilty to the state charges.

The indictment Monday said it was implausible for Backpage.com to contend such ads were offering lawful escort services. "I am the type of girl who absolutely adores a man who understands the many desires of a young beautiful woman and how to accommodate a variety of fantasies," one ad read.

The indictment alleges Backpage.com started to launder money a few years ago after banks raised concerns. Prosecutors said the site routed proceeds through unrelated entities, wire money into foreign banks and convert money into cryptocurrency.

Executive vice president Scott Spear was charged with facilitating prostitution and money laundering, while chief financial officer John Brunst was charged with money laundering. Sales and marketing director Dan Hyer, operations manager Andrew Padilla and assistant operations manager Joye Vaught also were charged with facilitating prostitution.

The indictment alleged that Padilla threatened to fire any employee who acknowledged in writing that the escorts depicted in ads were actually prostitutes.

Attorney Michael Piccarreta, who represents Padilla, said the case will be important in deciding whether a web host can be held responsible for a third party's behavior. "It's a very important precedent if a media company can be held responsible for what individuals post on their platform," Piccarreta said.

Michael Kimerer, a lawyer for Brunst, and Stephen Weiss, an attorney for Vaught, didn't return a call for comment. There were no lawyers listed in court records for Hyer.

Lacey and Larkin are former owners of the Village Voice and the Phoenix New Times. The indictment says Lacey and Larkin purportedly sold their interest in Backpage.com in 2015, though they have retained control over the site.

Lacey and Larkin were arrested in Arizona by then-Sheriff Joe Arpaio's office in 2007 for publishing information about a secret grand jury subpoena demanding information on its stories and online readers. They won a $3.75 million settlement from county government as a result of their now-discredited arrests.

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Mary Hudetz in Albuquerque and Don Thompson in Sacramento contributed to this report.

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Follow Jacques Billeaud at twitter.com/jacquesbilleaud. His work can be found at https://bit.ly/2GGWEPO.