Backpage’s Co-founder and CEO, As Well As Several Backpage-Related Corporate Entities, Enter Guilty Pleas

Earlier, the Justice Department announced the seizure of Backpage.com, the Internet’s leading forum for prostitution ads, including ads depicting the prostitution of children, and the unsealing of a 93-count federal indictment against seven Backpage principals.  Today, the Justice Department announced that Backpage’s co-founder and CEO, Carl Ferrer, 57, of Frisco, Texas, has pleaded guilty to conspiracy to facilitate prostitution using a facility in interstate or foreign commerce and to engage in money laundering.  Additionally, several Backpage-related corporate entities, including Backpage.com LLC, have entered guilty pleas to conspiracy to engage in money laundering.    

Attorney General Jeff Sessions, Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, First Assistant U.S. Attorney Elizabeth A. Strange for the District of Arizona, FBI Director Christopher A. Wray, U.S. Postal Inspection Service Chief Postal Inspector Guy Cottrell and Chief Don Fort of Internal Revenue Service Criminal Investigation (IRS-CI) made the announcement.

“For far too long, Backpage.com existed as the dominant marketplace for illicit commercial sex, a place where sex traffickers frequently advertised children and adults alike,” said Attorney General Sessions.  “But this illegality stops right now.  Last Friday, the Department of Justice seized Backpage, and it can no longer be used by criminals to promote and facilitate human trafficking. I want to thank everyone who made this important seizure possible: all of our dedicated and committed professionals in the Child Exploitation and Obscenity Section and our U.S. Attorney’s Office in the District of Arizona, the FBI, our partners with the IRS Criminal Investigation, our Postal Inspectors, and the Texas and California Attorney Generals’ offices. With their help, we have put an end to the violence, abuse, and heartache that has been perpetrated using this site, and we have taken a major step toward keeping women and children across America safe.”

“Backpage has earned hundreds of millions of dollars from facilitating prostitution and sex trafficking, placing profits over the well-being and safety of the many thousands of women and children who were victimized by its practices,” said First Assistant U.S. Attorney Elizabeth A. Strange.  “It is appropriate that Backpage is now facing criminal charges in Arizona, where the company was founded, and I applaud the tremendous efforts of the agents who contributed to last Friday’s enforcement action and who assisted in obtaining the indictment in this case.  Some of the internal emails and company documents described in the indictment are shocking in their callousness.”

“This website will no longer serve as a platform for human traffickers to thrive, and those who were complicit in its use to exploit human beings for monetary gain will be held accountable for their heinous actions,” said FBI Director Wray.  “Whether on the street or on the Internet, sex trafficking will not be tolerated. Together with our law enforcement partners, the FBI will continue to vigorously combat this activity and protect those who are victimized.”

“The events of last Friday and this week are a big win, not only for the agents who investigated these crimes, but more importantly for the victims, including children, who were harmed as a consequence of the alleged actions of Backpage.com,” said Chief Postal Inspector Cottrell.  “By laundering the illegal gains of an enterprise, Backpage perpetuated the exploitation of victims and continued to finance their business. The U.S. Postal Inspection Service is committed to protecting our customers by stopping the money laundering to ensure the cycle of victimization ends.”

“An indictment of this magnitude is particularly troubling when you look at the various layers of corruption and exploitation that are alleged to have occurred,” said IRS-CI Chief Fort.  “The masterminds behind Backpage are not only alleged to have committed egregious amounts of financial crimes such as money laundering, they did so at the expense of innocent women and children.  While these types of investigations can be made more challenging with the use of virtual currency, offshore banking, and the anonymity of the Internet, it should serve as an example to all criminals that there is not a place they can hide where we will not find them.”

According to the factual basis of his plea agreement, Ferrer admitted that he had long been aware that the great majority of Backpage’s “escort” and “adult” advertisements are, in fact, advertisements for prostitution services, which are not protected by the First Amendment and which are illegal in 49 states and in much of Nevada.  Ferrer further admitted that he conspired with other Backpage principals to find ways to knowingly facilitate the state-law prostitution crimes being committed by Backpage’s customers.  For example, he worked with his co-conspirators to create “moderation” processes through which Backpage would remove terms and pictures that were particularly indicative of prostitution and then publish a revised version of the ad.  Ferrer admitted that these editing practices were only one component of an overall, company-wide culture and policy of concealing and refusing to officially acknowledge the true nature of the services being offered in Backpage’s “escort” and “adult” ads. 

In the factual basis of his plea agreement, Ferrer also admitted that he conspired with other Backpage principals to engage in various money laundering offenses.  According to the factual basis, since 2004, Backpage has earned hundreds of millions of dollars in revenue from publishing “escort” and “adult” ads.  Over time, many banks, credit card companies, and other financial institutions refused to do business with Backpage due to the illegal nature of its business.  In response, Ferrer admitted that he worked with his co-conspirators to find ways to fool credit card companies into believing that Backpage-associated charges were being incurred on different websites, to route Backpage-related payments and proceeds through bank accounts held in the name of seemingly unconnected entities, and to use cryptocurrency-processing companies for similar purposes. 

Ferrer’s plea agreement also requires him to take all steps within his power to immediately shut down the Backpage website, including providing technical assistance to the United States to effectuate the shutdown, and to take all steps within his power to forfeit to the United States all corporate assets and other property owned or controlled by various Backpage-related entities.  The plea agreement provides that, if Ferrer fails to comply with either of these requirements, the plea agreement shall be null and void and the United States may bring additional charges against Ferrer.  Ferrer’s plea agreement, and the corporate plea agreements, also consent to the forfeiture of certain assets and items of property, including various domain names associated with the Backpage website.

The seven defendants charged in the 93-count indictment were all arrested on Friday, April 6.  They are Michael Lacey, 69, of Paradise Valley, Arizona; James Larkin, 68, of Paradise Valley, Arizona; Scott Spear, 67, of Scottsdale, Arizona; John E. “Jed” Brunst, 66, of Phoenix, Arizona; Daniel Hyer, 49, of Dallas, Texas; Andrew Padilla, 45, of Plano, Texas; and Jaala Joye Vaught, 37, of Addison, Texas.  On April 6, Vaught had her initial court appearance before U.S. Magistrate Judge Eileen Willett of the District of Arizona and was released from custody pending trial.  Lacey, who also had his initial court appearance on April 6 before Judge Willett, subsequently had a detention hearing on April 11 before U.S. Magistrate Judge Bridget S. Bade of the District of Arizona and was ordered to temporarily remain in custody until his continued hearing on Friday, April 13.  On April 9, Larkin, Spear, and Brunst had their initial court appearances before Judge Bade.  Larkin has since been ordered to temporarily remain in custody until a continued detention hearing on Monday, April 16, and Spear and Brunst were released from custody pending trial.  Also on April 9, Hyer had his initial court appearance before U.S. Magistrate Judge David L. Horan in the Northern District of Texas and was released from custody pending trial, and Padilla had his initial court appearance before U.S. Magistrate Judge Christine A. Nowak in the Eastern District of Texas and was released from custody pending trial. 

The charges and allegations contained in an indictment are merely accusations.  The defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

The effort to seize Backpage was led by the Justice Department’s Child Exploitation and Obscenity Section and the U.S. Attorney’s Office for the District of Arizona, with significant support from the U.S. Attorney’s Office for the Central District of California, the office of the California Attorney General, and the office of the Texas Attorney General.  The law enforcement agencies conducting the investigation and seizure include the FBI Phoenix Field Office, the U.S. Postal Inspection Service and IRS-CI.  The criminal case is being prosecuted by Assistant U.S. Attorneys Kevin Rapp, Dominic Lanza, and Margaret Perlmeter of the District of Arizona and Senior Trial Attorney Reginald E. Jones of the Criminal Division’s Child Exploitation and Obscenity Section.  Assistant U.S. Attorney John Kucera of the Central District of California is handling the asset forfeiture aspects of the case

This article by the Department of Justice was distributed by the Personal Finance Syndication Network.