93-count indictment on sex trafficking charges revealed against Backpage founders
PHOENIX — The U.S. Attorney's Office here unsealed indictments Monday against seven people associated with Backpage, officially charging that the classified advertising website operated as a thinly veiled and lucrative online brothel.
Among the two named in the 93-count indictment are the co-founders of Backpage, Michael Lacey and Jim Larkin. They previously had been the editor and publisher, respectively, of New Times, a Phoenix alternative weekly newspaper that grew large enough to buy out Village Voice Media in New York City.
The indictment charged the pair, along with others, of conspiring to knowingly facilitate prostitution offenses through the website. Authorities contend some of the trafficked people included teenage girls.
Backpage long had defended the posting of its escort ads, saying it was not responsible for the consequences of ads others had created. It also said its website provided a tool for law enforcement to find and rescue exploited women and girls.
► April 7:Feds charge Backpage founder after human-trafficking investigation
► April 7:Backpage, seized by feds, is a Delaware LLC in 'good standing'
► April 6:FBI raids Backpage founder's home as classified listing site shut down
The indictment instead said Backpage only wanted to create the perception that it was attempting to stop the selling of children for sex.
“(T)he reality is that Backpage has allowed such ads to be published while declining — for financial reasons — to take necessary steps to address the problem,” the indictment read.
The ads sometimes were written in a code that law enforcement and activists deciphered and customers seemingly understood.
"80 car visit come pick me up 30 minutes of ecstasy," read one, quoted in a U.S. Senate report. "down for whatever long as you got tha cash," read another.
As the website became a popular spot for escort ads, it also became the target of civil lawsuits and state statutes. In 2016, California's attorney general pursued charges of pimping against Lacey; Larkin; and the chief executive of Backpage, Carl Ferrer.
Ferrer, who had been a co-defendant with Lacey and Larkin in other cases, was not charged Monday in the federal case.
Backpage evaded charges and judges dismissed civil lawsuits based on a federal law that said websites were not liable for postings that others created. Congress altered that law last month, saying such liability doesn't extend to websites that knowingly facilitate sex trafficking.
A federal grand jury, which spent 14 months hearing evidence in the case, found that Backpage had violated existing law. Word of the grand jury probe first was mentioned in a February 2017 court filing from Backpage lawyers as part of a civil lawsuit in Washington.
One month before, the U.S. Senate Permanent Subcommittee on Investigations had released a report that concluded the website's operators carefully tailored wording in the ads to mask potential illegal activity. Sen. Claire McCaskill, D-Mo., said the report could serve as a road map for prosecutors to bring criminal charges against Backpage.
► March 21:Senate approves bill to curb sex-trafficking, sending it to president
► Feb. 13:‘It lights up the brain like crack’: Why men buy sex
The U.S. Senate report was based largely on emails sent among Backpage employees that showed them discussing what phrases or images could be allowed. The guidelines seemed to shift based on whether executives thought they were more prone to scrutiny from law enforcement, the emails showed.
Some emails showed employees discussing how to censor ads without invoking the ire of customers, the people posting and paying for the ads.
The indictment listed 50 specific instances where ads were alleged to have been used to facilitate prostitution.
It also summarized the experiences of 17 victims trafficked through the website, according to Cosme Lopez, a spokesman for the U.S. Attorney's Office in Phoenix.
A customer killed one victim met through an ad, he said during a Friday briefing. Several of the victims were as young as 14 when trafficked.
The indictment also contains more than 40 counts of money laundering, Lopez said. Money was wired into and out of foreign countries and converted to Bitcoin and other so-called crypto-currencies.
The indictment contends that activity was necessary because “virtually every dollar flowing into Backpage's coffers represents the proceeds of illegal activity.”
Lacey asked an Arizona bank for advice on moving his assets offshore so the government wouldn't seize them, according to the indictment. He later wired $16.5 million to a bank account in Hungary.
Lacey and Larkin sold all the New Times and Village Voice Group newspapers to the chain's editors and publishers in 2012.
► Aug. 4:Who's buying sex? Married white men, Minnesota study says
► Aug. 1:Senators: Alter Internet laws to hold Backpage liable for sex trafficking
They sold their interest in Backpage in 2015 but continued receiving “tens of millions of dollars” in Backpage-related money, the indictment alleges.
On Friday, FBI agents raided Lacey's home in Sedona, Ariz., and Larkin's home in Paradise Valley, Ariz., and the federal indictment against the men was sealed. Portions of the indictment provided Friday to Lacey's lawyer, Larry Kazan, also were redacted.
The Backpage website, and its associated websites, carried a banner Friday that federal law enforcement agencies had seized them. The banner still appeared on the website Monday.
Other Backpage executives charged:
• Scott Spear, a former executive vice president
• John “Jed” Brunst, former chief financial officer
• Dan Hyer, sales and marketing director
• Andrew Padilla, operations manager
• Joye Vaught, assistant operations manager.
Spear and Brunst also had been former executives of New Times.
Vaught had supervisory roles over the people moderating ads, according to the Senate report. In e-mail quoted in the Senate report, Vaught criticized an employee who alerted the National Center for Missing and Exploited Children about an ad the employee thought contained an underage girl who appeared drugged and bruised.
“She just doesn’t look 18,” Vaught replied, according to an e-mail quoted in the report. “These are the kind of reports the cops question us about. I find them all the time. It’s just usually you who sends them.”
► February 2017:Phoenix domestic-violence shelter files suit against Backpage
► January 2017:Backpage execs refuse to answer panel probing sex trafficking
Padilla also supervised Backpage moderators. In one internal email quoted in the indictment, Padilla threatened that “implying that we’re aware of prostitution … is enough to lose your job over.”
Lacey started New Times while an Arizona State University student in 1970 as a response to the Vietnam War. Lacey was its longtime crusading editor; Larkin, who joined New Times shortly after its founding, would become its publisher.
The tabloid became known for aggressive award-winning reporting. It also became known for satirical stunts, like having the attorney general unknowingly pose for a cover photo with a felon who had just escaped from jail or announcing a fictitious program that would gives guns to homeless people in downtown Phoenix.
Backpage started in 2004 as a classified ad website to rival Craigslist. The name comes from the title given to the literal back page of the New Times tabloid, which was filled with classified ads sold at a premium.
According to an internal history of the company contained in the Senate report, Backpage saw a lucrative opening when Craigslist, bowing to pressure from law enforcement and advocates, shut down its adult ad section.
In an email sent to employees in October 2010, Ferrer, the company's chief executive wrote: “Craig killed his adult section last night in all US markets. It is an opportunity for us. Also a time when we need to make sure our content is not illegal.”
Soon, Backpage became the home for the ads that purported to offer escorts.
Backpage employed an automated system that screened out words possibly indicative of illegal activity, rather than passing that information on to law enforcement, according to internal documents that U.S. Senate investigators obtained.
► January 2017:Backpage shuts adult services section following Senate report
► October 2016:Backpage.com shareholders in custody on pimping charge
Internal emails showed that Backpage supervisors would debate whether certain words or phrases were obvious indicators of an exchange of money for sex, or if they were, as one executive wrote, “phrases of nuance.”
Words like “quickie” and “afternoon delight” were allowed, according to the emails. Other terms, including “amber alert” and “cheerleader,” were deemed indicative of minors being offered for sex and banned from the site, the emails said.
The business was lucrative. The adult ads were among the few Backpage charged users to post. Backpage earned $135 million in 2014, according to the U.S. Senate report.
► October 2016:Backpage.com CEO charged with pimping in California
► October 2016:Supreme Court declines sheriff's appeal in Backpage sex ads fight
A February 2015 appraisal said the company was worth more than $600 million.
Employees of Backpage told Senate investigators that it was common knowledge that prostitution was being conducted on the website. One employee told Senate investigators that efforts to moderate ads amounted to putting “lipstick on a pig.”
When Lacey and Larkin sold New Times in 2012 but kept Backpage, Lacey said that Backpage attempted to stop children from being sold on the site.
► March 2016:Senate passes rare contempt resolution against sex-ad website
► July 2015:Visa follows MasterCard, cuts off business with Backpage.com
"We try to keep them off the Internet," he said. "But that doesn't mean that they can't subvert it or break the law or violate our terms of use."
The indictment unsealed Monday quotes Lacey, in an internal document, saying that Backpage was helping the prostitution industry.
“For the very first time, the oldest profession in the world has transparency, record keeping and safeguards,” he is quoted as saying.
Follow Megan Cassidy and Richard Ruelas on Twitter: @meganrcassidy and @ruelaswritings
Note: Portions of the following indictment have been redacted to remove some of the more vulgar phrases of a sexual nature, websites that purport to advertise prostitution and specific street addresses.