Backpage founder Michael Lacey dodges prostitution rap, but convicted on money laundering count

A federal jury spared Michael Lacey, founder and former owner of the
controversial classified advertising website Backpage.com, convictions
for facilitating prostitution Thursday but did find him guilty of one
count of international concealment money laundering.

The conviction carries a potential sentence of up to 20 years in prison.

After more than a week of deliberations that saw the jury deadlocked on
99 of the 100 felony counts of conspiracy, money laundering and
violating the federal Travel Act by facilitating prostitution, jurors
came back with a mix of guilty, not guilty and no verdict on the charges
against five defendants.

The jury found Lacey, founder and
former editor of the highly-regarded alternative weekly the Phoenix New
Times, not guilty on one count of international promotional money
laundering, but two other former Backpage executives were not so lucky.

Scott
Spear, former executive vice president, was found guilty of conspiracy,
18 prostitution counts and 23 money laundering counts.

Former chief financial officer John Brunst was also found guilty of conspiracy and 31 counts of money laundering.

Spear
and Brunst could face up to five years in prison for the conspiracy
conviction and up to 20 for each of the money laundering convictions.
Spear could face an additional five years for each of his 18
prostitution convictions.

The jury found former operations
manager Andrew Padilla and former assistant operations manager Joye
Vaught not guilty of conspiracy or 50 counts of facilitating
prostitution. They faced no money laundering charges.

“We thank
the jury for their service, and we feel that they returned the right
verdict,” attorney David Eisenberg said on behalf of Padilla, who
declined to comment.

Joy Bertrand, attorney for Vaught, had more to say.

“My
client should have never been in this case,” she said outside the
ceremonial courtroom in the federal courthouse in Phoenix. “She was
charged and pressured to cooperate and assist the government, and she
had the courage to say no. That she would not lie to save her skin.

“I’m so proud of her,” she added, her voice cracking as she spoke.

Bertrand said the case “should never have been brought.”

“It’s an offense to the First Amendment, and I hope my colleagues fight to the bitter end,” she said.

Defense
attorneys in the case consistently brought up the First Amendment as a
defense for the adult ads posted on Backpage from 2004 to 2018, also
claiming that Section 230 of the Communications Decency Act should have
immunized defendants from the allegations against them. But the defense
was precluded from using Section 230 as a defense, and was often stifled
from arguing free speech in the way defense attorneys wanted to.

“They come after this platform, they come after other platforms next,” she said. “This affects everybody.”

Vaught declined to comment as well.

Attorneys for Lacey, Spear and Brunst did the same, and told reporters their clients won’t speak to media for now.

Lacey’s
single conviction stems from a $16.5 million payment to a bank in
Hungary, which prosecutors say was an attempt to conceal ill-gotten
gains from his website. But the jury did not decide whether he committed
the crimes to acquire said gains.

“I think that’ll resolve itself,” Bertrand said. “He’s got outstanding counsel.”

His only not-guilty verdict pertains to a $6,450 payment to a web developer in India.

He
faced 86 counts in total, the most of any defendant. Spear faced 78,
and Brunst faced 85. Padilla and Vaught each faced 51. The jury returned
a total of 75 convictions on 100 counts.

Lacey and the others ran Backpage from 2004 to 2015, when he and his business partner James Larkin, who died by suicide in August,
sold it to former CEO Carl Ferrer. The FBI seized it in 2018 after more
than a decade of controversy surrounding prostitution and sex
trafficking, launching what became a five-year legal slog.

The federal government indicted Lacey, Larkin, Ferrer and five others, accusing them of facilitating prostitution through the site’s adult section, from which Backpage made the vast majority of its money. 

Ferrer
and former sales director Dan Hyer pleaded guilty in 2018, and
testified for the government as part of their deals. The rest pleaded
not guilty. 

Prosecutors told the jury over the course of a two-month trial
that the ads listed in the adult section, which advertised services
like escorts and sensual body rubs, were prostitution ads disguised as
legitimate adult business enterprises. 

The defendants insisted
that the website’s moderation team worked diligently to remove
prostitution from its site, pointing to numerous law enforcement
agencies that used Backpage to catch pimps and prostitutes and thanked
the team for its help in busting illegal activity. 

Multiple police witnesses
said they couldn’t make prostitution arrests based on the content in
the ads on their face, as they didn’t make explicit offers of sex for
money. The defendants argued this proved their actions were legal, as
they can’t be held responsible for anything users do outside the
website. 

The government countered the defendants knew of and
encouraged the use of coded language in ads to avoid detection by law
enforcement.

The case went to trial first in 2021, but the judge
declared a mistrial because the government repeatedly mentioned child
sex trafficking. While critics accused the website of promoting child
trafficking, defendants never faced such criminal charges.

The
second trial, refereed by U.S. District Judge Diane Humetewa — the
fourth federal judge to helm the case — began the last week of August,
with closing arguments ending Oct. 31. The jury began deliberating on
Nov. 7, after taking five days off following a Covid-19 scare.

The second trial moved slowly. Larkin’s death pushed the trial back three weeks, and a defendant caught COVID-19 during opening arguments, delaying it by another week.

Defense
attorneys made six motions for mistrial over the nine-week period,
claiming that the government’s transgression outshined what constituted
mistrial the first time around.

The defense complained three times of references to child sex trafficking,
invoking the same issue that raised its head in 2021. Another motion
was made in mid-October after a court security officer told two jurors
about Larkin’s death. Two others came regarding the disclosure of
documents between parties. 

Humetewa, a Barack Obama appointee,
denied five of the six, pushing the trial forward to its conclusion. The
final motion is still pending.

The case brought salient
questions regarding free speech and internet communications laws, namely
whether an internet service provider can be held liable for third-party
speech posted on its platform. Humetewa barred the defense from telling
the jury about Section 230 of the Communications Decency Act
— the law that would hypothetically protect the defendants’ actions —
because the section applies only to state crimes, not federal crimes. 

The government also argued that Backpage lost its Section 230 protections
by seeking to attract pimps and prostitutes to the site. U.S. District
Judge Susan Brnovich, a Donald Trump appointee who declared the first
mistrial and then recused herself from the case, agreed. 

While a verdict has been returned, there are a few outstanding issues for the court to address.

Two late disclosures by the government
in the past week have raised issues for defense attorneys, who say
information contained in the belatedly-shared documents could have been
used to cross examine multiple government witnesses, including Carl
Ferrer. One such document is a 90-page asset-tracing report prepared by
an IRS investigator looking into the money laundering claims. Another is
a set of emails between Ferrer and that investigator.

Humetewa still hasn’t ruled on whether the documents include exculpatory information.

Also
active are the Rule 29 motions for acquittal pertaining to Lacey, Spear
and Brunst. Humetewa told the defendants to submit a supplement to
their oral motions by Nov. 29. She will likely schedule a hearing in the
first week of December.

Finally, the judge still hasn’t ruled on
the government’s motion to issue a protective order over some of the
exhibits, which came after a local reporter asked the court how to
access them. Trial exhibits are public record and subject to disclosure,
but the government told Humetewa that because many of the exhibits are
sexual ads containing images of minors, they should be held from
disclosure to protect the identity of the women in them. It’s unclear
when she will rule on that motion.