Feds: Backpage plotted to be prostitution hub; founders face new charges – By Richard Ruelas (Arizona Republic) / July 25 2018
In this Jan. 10, 2017, photo, Backpage.com CEO Carl Ferrer (from left), former owner James Larkin, COO Andrew Padilla, and former owner Michael Lacey, are sworn in on Capitol Hill in Washington, prior to testifying before the Senate Homeland Security and Governmental Affairs subcommittee hearing into Backpage.com’s alleged facilitation of online sex trafficking.
Indictment lays out additional details on how executives strategized to corner prostitution ad market.
The federal government filed a new indictment Wednesday against the operators of the shuttered website Backpage, alleging that the website purposefully enacted a business plan to corner the national market for classified ads offering prostitution.
The supervening indictment charges the executives of Backpage with the same crimes, but brings up new evidence to do so.
The original indictment, unsealed in April, relied chiefly on emails that showed Backpage discussed moderating and editing ads to disguise prostitution-related activities.
The indictment filed Wednesday alleges that Backpage executives had a two-pronged strategy to corner the classified-advertising market for prostitution.
One strategy involved making a financial deal with a prostitution-review website.
Another, dubbed the “Dallas Plan,” involved Backpage employees searching other adult sites for prostitutes and luring them to advertise on Backpage by offering free ads. Successful employees were paid bonuses for the effort, the indictment says.
The indictment also describes a character named “Dollar Bill” who encouraged prostitutes to post ads and became a favorite client of the website.
Jim Larkin (left) and Michael Lacey (Photo: Sacramento County Sheriff’s Office)
Backpage was co-founded by Michael Lacey and James Larkin, the former editor and publisher, respectively, of New Times, the feisty alternative weekly started in Phoenix nearly 50 years ago.
The indictment had previously charged both Lacey and Larkin with knowingly facilitating prostitution through the website. The new indictment on Wednesday also charged John “Jed” Brunst, the former chief financial officer of Backpage, with that crime.
An attorney for Brunst, Gary Lincenberg of Los Angeles, said by email that his client was innocent and that the government’s charges of facilitating prostitution “unjustifiably damaged the reputation of a good man.”
Lincenberg said there was no evidence to support the facilitation claims against Brunst.
“We hope the community will withhold judgment until he has an opportunity to prove his innocence,” he said in the statement.
The new indictment also added new money-laundering charges against Lacey, alleging he tried to transfer millions of dollars to a bank in Hungary.
An attorney for Lacey said his client was not guilty. “It is our firm position that these charges are in no way justified,” read the email from Paul Cambria, a Buffalo, New York, attorney.
Backpage was seized by federal authorities and shut down in March after prosecutors with the U.S. Attorney’s Office in Phoenix first charged the executives involved.
Days after the arrest of Backpage executives, including Lacey and Larkin, prosecutors revealed that the website’s former CEO, Carl Ferrer, had agreed to cooperate with prosecutors looking into Backpage’s operations.
Lacey and Larkin each were ordered released on $1 million bond and fitted with a tracking device. Each man put up property as security against their release. The other executives were released on their own recognizance.
Cindy McCain on April 6, 2018, lauded the indictment of one of Backpage’s co-founders, Michael Lacey.
How Backpage got its start
The Backpage website took its name from the literal back page of classified ads that appeared in each issue of the tabloid weekly New Times.
That publication was founded by Lacey in 1970 as a response to the shootings of student protesters of the Vietnam War by National Guard troops at Kent State University. Lacey was himself a student at Arizona State University at the time.
The weekly became known for both hard-hitting journalism and arts coverage, all delivered with an irreverent attitude.
Lacey soon was joined by James Larkin, who handled business operations. The pair grew the tabloid into a national chain. It rivaled, and eventually swallowed, the Village Voice chain, the venerable alternative weekly based in New York.
Ferrer prodded Lacey and Larkin to start Backpage in 2004, moving the classified ads in the tabloid onto the internet. By 2010, it was dominated by adult advertising.
Indictment details marketing plans
New details in the indictment suggest that executives plotted to garner that business.
According to the indictment, it started with an April 10, 2007, email that described a successful strategy devised in Dallas to get women advertising on other sites to move to Backpage.
The email described the strategy, devised, according to the indictment, by Dan Hyer, who would become Backpage’s marketing director.
Backpage employees in Dallas would use Google searches to identify potential prostitutes who had posted ads on other websites. Employees would then engage in a three-part strategy to lure them to post ads on Backpage, according to the indictment.
“Call clients. Ask them if they have tried backpage.com. If not, post a free ad with an auto repost for free for six weeks,” reads the indictment, quoting the blueprint.
On June 15, 2007, a group of Backpage principals met in Oregon to discuss several topics. There, Hyer was set to tell the executives how the Dallas Backpage grew to “$40K+ per month,” the document read.
The strategy, according to the indictment, rolled out in other cities the next month.
By August, according to the indictment, it had been deployed in San Francisco, Nashville, Kansas City and Orange County.
A November 2008 email sent to Backpage executives reported the website had just had its best-ever month in terms of revenue. Credit was given in the email to the aggregation strategy, the indictment says.
The indictment also details another strategy that involved posting ads on a site, the Erotic Review, where customers purportedly reviewed their interactions with prostitutes.
The reviews, the indictment alleges, included discussions of prices and explicit descriptions of acts.
In July 2007, Ferrer sent an email to Scott Spear, an executive vice president at Backpage, explaining how many people came to Backpage through the Erotic Review website. Ferrer suggested creating a business arrangement in which each website would post ads on the other, the indictment says.
By the end of that year, a document quoted in the indictment declared the program a success. “It created huge brand awareness in this niche industry,” read the document, as quoted in the indictment.
The email quoted in the indictment said Backpage received 1 million additional page views through its relationship with the Erotic Review. “The internet makes strange bed fellows,” read the email, as quoted in the indictment.
Backpage co-founder Michael Lacey and wife Jill Anderson leave the federal courthouse in Phoenix April 13, 2018. He was released from federal custody while awaiting trial on prostitution and money-laundering charges. Thomas Hawthorne/azcentral.com
Feds: Backpage execs weren’t naive
The indictment also contains new pieces of evidence that prosecutors included to bolster their claim that Backpage’s operators knew they were facilitating prostitution.
The indictment alleges that in April 2011, Backpage executives were warned that the phrase “new in town” was a coded phrase used by “pimps who shuttle children to locations where they do not know anyone and cannot get help.”
The warning came from a company hired by Backpage to address “internet safety” issues, according to the indictment.
The firm also recommended that Backpage attempt to determine whether credit-card numbers used on the website were of the prepaid variety and whether a single phone number was being used in several ads. Both, the firm suggested, were indicators of a sex trafficker. According to the indictment, Backpage disregarded the suggestions.
The indictment also describes a character known as “Dollar Bill” who earned a commission for getting pimps and prostitutes to advertise on Backpage.
In March 2010, according to the indictment, Dollar Bill complained to Andrew Padilla, who would become the website’s chief operating officer, that more than 4,000 of his ads had been deleted.
Padilla ordered the ads restored in an email to Backpage programmers that is quoted in the indictment. “This is one of our largest adult accounts and the restoration of these ads is a high priority for us,” read the email, as quoted in the indictment.
In October 2010, Dollar Bill sent an email asking for a reduction in the rates that Backpage was charging him to post ads, according to the indictment. He suggested he deserved the reduced rate, according to his email quoted in the indictment, because “I was so instrumental in building New York, where you’re making a bloody fortune …”
Backpage.com co-founder Michael Lacey and his wife, Jill Anderson, walk out of the Sandra Day O’Connor Federal Courthouse in Phoenix on April 13, 2018. (Photo: Tom Tingle/The Republic)
Money-laundering charges
The indictment adds seven more counts of “transactional money laundering” against Lacey.
The new charges allege that on Dec. 29, 2016, Lacey made five transfers, each of $3.3 million, from one bank to another. And that, on Jan. 3, 2017, he transferred $16.5 millionto a bank in Hungary. The final transaction triggered a charge that he attempted to conceal those funds by moving them overseas.
The indictment also lists several new bank accounts the government wishes to seize, including several accounts holding bitcoin.
The indictment also alleges that Larkin continued to meet regularly with Ferrer to discuss and direct the operation of the website, despite its purported sale to Ferrer in April 2015.
Through these meetings, Larkin and others discussed such moves as relocating some Backpage operations to the Philippines.
The indictment also alleges that, in 2018, Larkin and others took steps to sell Backpage to a new buyer.
