2 Backpage execs found guilty on prostitution charges; another convicted of financial crime

A federal jury found two former Backpage.com executives guilty of conspiring to use the website to facilitate prostitution and a third guilty of a financial crime related to the classified advertising website that prosecutors said was designed to enable and profit from prostitution.

Former Backpage.com executives Scott Spear and John "Jed" Brunst were convicted of conspiring to use the website to facilitate prostitution. The jury also found the two guilty of some financial crimes, but not guilty of others.

The jury deadlocked on prostitution-related charges filed against Michael Lacey, Backpage cofounder and former editor of an alternative news weekly in Arizona. Lacey was found guilty on a money-laundering charge.

Lacey, former editor of the Phoenix New Times, pursed his lips and shook his head as the jury exited the courtroom after the reading of the verdict. With the litany of charges, it took more than 30 minutes to go through them all.

The jury deadlocked on more than 80 counts against him. The single count Lacey was convicted of involved a January 2017 transfer of $16.5 million to a bank in Hungary. The indictment said Lacey did so knowing the money represented gains from illegal activity and that he attempted to conceal it.

Two former Backpage employees who were involved in moderating ads on the site were found not guilty on all prostitution-related charges.

Jurors declined comment after the verdict Thursday. One juror who declined to give her name said she was relieved the trial was over and was happy to go home.

Lacey, 75, and his lawyer, Paul Cambria, both declined comment.

The deadlock on the bulk of the charges against him marked the second time that the federal government failed to secure a verdict against Lacey on accusations he operated Backpage in a way that made it easy for prostitutes, pimps and customers to conduct transactions.

The website hosted classified ads for jobs, furniture and concert tickets, but prosecutors said the business model centered on the prostitution ads, mainly found in the “escorts” section.

Parsing the jury's verdict, it seemed jurors decided Backpage executives created the website to facilitate prostitution but could not unanimously agree that Lacey was involved to the extent that he was complicit.

In testimony to the jury, the former CEO of Backpage, Carl Ferrer, described Spear, 72, as a "micromanager" who was interested in Backpage's success.

But an attorney for Spear, Bruce Feder, said during closing arguments that Spear was working to remove unlawful content from Backpage. He showed the jury several emails in which Spear directed staff to "clean the site up" and chastised them for failing to properly moderate ads.

"Scott, in good faith, did the best that he could," Feder said.

Brunst, 71, the former chief financial officer of Backpage, was referred to by Assistant U.S. Attorney Andrew Stone in his opening statements as a "key cog, key player" who designed new schemes to "keep the money flowing."

But an attorney for Brunst, Gary Lincenberg, said his client was merely an accountant for a successful media holding company that operated not only Backpage but several newspapers.

Lincenberg told the jury only one witness, Ferrer, implicated Brunst in any wrongdoing. And Ferrer, he said, had reason to point the finger of blame at his client.

"Ferrer's liberty depends on pleasing the prosecutors," Lincenberg said. "His goal is to avoid prison, and he is hoping the prosecutors will recommend leniency."

Both Spear and Brunst were convicted of an overarching conspiracy charge, accusing them of running Backpage in a way that was designed to enable prostitution. Spear was additionally found guilty of 17 additional counts stemming from specific ads that ran on Backpage.

Spear was additionally convicted of 21 counts of money laundering. Brunst was convicted of 33 counts of money laundering.

In an August hearing ahead of the trial, prosecutors laid out possible sentences on the charges based on federal guidelines: Those related to prostitution could result in a sentence of four to five years in prison, prosecutors said.

The money laundering charges come with a statutory maximum sentence of 20 years.

Case built from emails obtained by U.S. Senate

The case was built largely from internal emails turned over to a U.S. Senate subcommittee under subpoena. When the report was released in January 2017, Sen. Claire McCaskill, a Democrat from Missouri and a former prosecutor, said it contained a “treasure trove” of evidence and encouraged prosecutors to use it to hold the operators of Backpage accountable.

The first trial ended in a mistrial in September 2021, after just a few days of testimony. The judge called a mistrial because prosecutors elicited testimony about child sex trafficking that the judge thought was too prejudicial to the defendants.

Prosecutors announced their intention to retry the case. But bringing the case to a second jury would not happen for two years.

In July, days before opening statements began, Lacey’s longtime business partner, James Larkin, died by suicide in the desert east of Phoenix.

Larkin was facing near identical charges as Lacey. Both men had most of their assets frozen, with the government arguing the homes and bank accounts represented ill-gotten gains from their crimes.

It is not clear if the government will pursue charges against Lacey again. After the verdict, the judge presiding over the case, Diane Humetewa, said she would expect an answer from federal prosecutors during a hearing she would set in December.

The late August start of the trial was pushed back a few days after Larkin’s death, but prosecutors persisted in trying the case. The death was only obliquely mentioned in court. Potential jurors who said they had heard of it were asked whether it would color their ability to be fair.

Prosecutors argued Backpage would edit ads so they were just provocative enough while still giving plausible deniability that the company knew the ads were for sex.

Internal emails showed an evolving list of terms to excise from ads. The standards tightened and relaxed, according to testimony, depending on the amount of media and law enforcement scrutiny the website was receiving.

Lacey started the New Times weekly tabloid in 1970 to provide a voice to the counterculture rising in opposition to the Vietnam War. Through the ensuing decades, he forged a reputation as a fearless editor whose newspaper had no sacred cows.

Lacey and Larkin grew the chain into a string of alternative weeklies across the United States. The company became large enough to buy up the Village Voice, the venerated tabloid published in New York City.

In 2007, Lacey and Larkin were both jailed by then-Maricopa County Sheriff Joe Arpaio for publishing the details of a grand jury subpoena, a document that was supposed to remain secret. The subpoena asked for information on readers of the publication’s website. The two spent hours in jail, but the charges were quickly dropped. The two reached a settlement with the county for $3.75 million.

They used the money to fund causes they held dear, mainly in the Latino community they felt had been targeted by Arpaio.

Attorney: Lacey 'fighting against criminal activity'

In this latest case, Lacey steadfastly maintained his innocence. He and his attorneys cast the trial as putting in peril the First Amendment right to publish.

A federal law, the Communications Decency Act, generally protects a website from liability for words published by others. Over the years, courts had immunized Backpage from criminal and civil prosecutions because of that law.

In his opening statement, Lacey’s attorney Paul Cambria told jurors that some users abused the website. But, he said, that was not the fault of the operators. He likened it to people who use telephones or the mail to commit crimes.

“(Lacey) believed he was not facilitating, and that Backpage, which he owned a part of, was not facilitating prostitution,” Cambria told jurors.

Defense attorneys pointed to a host of kudos from law enforcement and missing children’s organizations praising Backpage for responding to requests for information about potentially underage girls advertised on the site.

Cambria also said that when Backpage edited or screened out ads it was attempting to stop illegal activity, not facilitate it. He said the government had a twisted logic to the idea that editing the ads was evidence of guilt.

“If you take words out, you are not promoting criminal activity,” Cambria said. “You are fighting against criminal activity.”

Cambria also said Lacey didn’t know the people who posted the ads and there was no way to tie him to any illegal activity that took place from their posting.

But prosecutors argued that Backpage was not merely hosting the ads. Instead, it was working to ensure that prostitutes and customers — potential “johns”— were seeing the site as the spot to transact business.

Prosecutors said Backpage steadily worked on a strategy to corner the market on online prostitution ads. It worked to shield its activities, in part by moderating ads to make them less overt. The seeming cooperation with law enforcement, prosecutors said, was a ruse to keep officials at bay.

Prosecutors relied on a trove of emails, provided by subpoena to a U.S. Senate committee, that they maintained showed Backpage knowingly looked to position itself as the leading website for online prostitution ads. Internal documents showed budget projections that counted on that business to rise dramatically through the years.

The internal documents contained a draft of a proposed editorial Lacey wrote that praised Backpage’s contribution to the prostitution industry. “For the very first time, the oldest profession in the world has transparency, record keeping and safeguards,” Lacey wrote.

The government also had a star witness: Carl Ferrer, the former chief operating officer of Backpage. It was Ferrer who first pitched Lacey and Larkin on the idea of creating the online classified advertising site.

Ferrer was also the person who edited the line about “the oldest profession in the world” out of Lacey’s editorial.

Ferrer, in his testimony, did not mince words when asked about the nature of the ads posted in the female escort section, which became the dominant section of Backpage.

“They were prostitution ads,” he told jurors.

Ferrer testified that he and other Backpage employees had a meeting with federal prosecutors in February 2018, weeks before the indictments were handed down. Ferrer said that after that meeting, “I came to the conclusion maybe the best thing for me to do is to shut down the site.”

Ferrer said he told others at Backpage that, “I couldn’t do this anymore.”

What government's key witness told jurors about Backpage

Ferrer pleaded guilty on behalf of himself and Backpage. In his plea, Ferrer acknowledged that he conspired to sanitize “escort” ads by removing photos and words that were indicative of prostitution.

In his testimony, Ferrer told jurors that Backpage had a plan starting in 2007 to grow the one section of the classified advertising website that reliably produced money. “We were very successful in our prostitution marketing activities,” Ferrer told jurors.

An email from April 2007 described a script that Backpage employees would use to essentially poach ads from its chief competitor, Craigslist. Ferrer said sales staff contacted people who were posting prostitution ads on Craigslist and offered to post those ads on Backpage for free.

Ferrer said it was obvious the ads were for prostitution, since this was before either website was attempting to sanitize them.

“The ads have sex act (pictures), they have sex act words,” Ferrer said, “with a price per hours.”

Ferrer said cornering the market was key. “They needed their phone to ring,” he said. “There were limited options for them to advertise.”

Ferrer also described a partnership with a website called the Erotic Review, which allowed users to post reviews of prostitutes.

The two websites came up with a strategy: Reviews on the Erotic Review would contain a link to that woman’s escort ad on Backpage. And ads on Backpage would take potential customers to that escort’s reviews on the other website.

Ferrer, in testimony, called the partnership the “secret sauce” that created traffic for the Backpage ads.

By July 2007, the system was generating 2 million visits per month to Backpage, Ferrer said.

The Erotic Review authored an ad it wanted posted on Backpage describing the benefit the partnership offered to consumers. The ad, which was shown to jurors, told customers they would “not get ripped off again. Before you pick up that phone, read her reviews.”

In 2010, under pressure from government officials and anti-trafficking advocates, Craigslist closed its adult section. Ferrer said he and other Backpage executives saw the opportunity to have a monopoly on the ads for prostitution.

Larkin wrote in an internal email that Craiglist stopping its adult section meant that it was “possible that this will mean a deluge of adult content ads for backpage.com.”

Though it drove up escort ads, Ferrer said that Backpage executives “were very concerned we were next.”

So, Ferrer said, the website started editing ads, hiring a team of employees to comb through them for problematic words and images. Eventually, that was outsourced to moderators overseas. For their benefit, a list of forbidden terms was created.

“We sanitized the site,” Ferrer told jurors. “We made it less obvious prostitution.”

Ferrer said that Backpage would report ads to the National Center for Missing and Exploited Children, but would intentionally flood the agency with reports to overwhelm it. Ferrer also said that Backpage would file reports of ads posted on other sites to draw away attention from Backpage.

Jurors also heard from three women who testified about being the subject of ads and how those ads often resulted in an exchange of sex for money. One of the women said she was underaged when some of the ads were published.

Other executives, employees on trial as well

Besides Lacey, two other Backpage executives stood trial and were hit with guilty verdicts: Spear, a former executive vice president, and Brunst, the former chief financial officer.

Two Backpage employees also were on trial and exonerated by the jury: Padilla, the operations manager, and Vaught, the assistant operations manager. Both dealt with moderating, or editing, ads.

Vaught's attorney, Joy Bertrand, said, "The jury did the right thing by my client. She never should have been in this case."

Bertrand said Vaught's life was ruined by the prosecution. But she praised her client's integrity for not taking a plea deal offered by the government that would have spared her incarceration.

"She would not lie to save her skin," Bertrand said.

Bertrand said she specialized in white-collar cases, but could not explain the conviction of Lacey for hiding funds gained from an illegal activity, despite the jury not finding him guilty of illegal conduct in operating Backpage.

"Juries see evidence the way they see it," she said.

Padilla declined comment. His attorney, David S. Eisenberg said he was "glad the jury saw the evidence the way we presented. And, of course, we think it's the right verdict with respect to Mr. Padilla."

A marketing executive, Dan Hyer, was indicted with the others. But he also reached a plea deal and testified for the prosecution.

All five defendants were charged with a single count of conspiracy to facilitate prostitution. The indictment also listed 50 specific ads posted on Backpage. The jury was asked to decide whether allowing the posting of the ads could enable an act of prostitution. If so, because the ads used interstate telecommunications, the defendants would violate federal law.

Prosecutors, in closing arguments, described the ads as a sampling of the millions posted on Backpage over 14 years. They told jurors they didn’t have to show each one led to an act of prostitution, but that based on testimony about terms used and, at times, communications with those posting them, the defendants meant to associate themselves with the prostitution business.

“By creating a marketplace, creating a forum where those ads could be posted, it helped promote someone else committing a prostitution offense,” Assistant U.S. Attorney Austin Berry said during his closing statement.

The jury had wrestled with the case for more than two weeks and asked several questions of the judge during deliberations.

The jury asked three questions on nuanced variations of a specific point: Could someone be found not guilty of the overall conspiracy charge but guilty of charges regarding specific ads? The judge instructed the jurors they could reach that conclusion.

Lacey, Spear and Brunst faced additional charges of money laundering.

Lacey and the other defendants did not testify in their own defense. Each had told the court in documents that they wished to take the stand, but only if they were allowed to tell the jury about the advice they had received telling them their website was legal.

Judge Diane Humetewa, who presided over the trial, did not allow that. She ruled that the defendants could not discuss legal advice they received unless they could show the lawyers had known about the entire operation, not just the version of Backpage presented to the public.

She also limited testimony about court rulings that found Backpage enjoyed immunity, saying they also were based on an incomplete picture of Backpage’s business practices.

Prosecutors indicted Lacey and other Backpage executives and employees in March 2018. The two were arrested in early April, days after the indictment was filed. That same day, the Department of Justice also seized the website.

In the first trial, the judge in that case ruled that prosecutors had introduced too much testimony regarding underage girls sold on the website and emotional testimony from a woman who was sold and, as she described, raped by men responding to Backpage ads.

The judge in that trial, Susan Brnovich, and the judge in the second trial this year said prosecutors needed to confine testimony to the charges the Backpage executives and employees faced: facilitating prostitution.

Humetewa cautioned against prosecutors eliciting testimony that mentioned child sex trafficking, but allowed that some of the ads mentioned in the indictment were of minors.

Lacey, others rejected plea agreement

In a 2018 interview with Reason magazine, Lacey cast the battle as a free speech issue.

“This is the biggest speech battle in America right now," Lacey said.

He said the government was pursuing the case because it didn’t like the people who chose to use Backpage or what they posted. He said the words written in the advertisements were exactly what the Founding Fathers wished to protect with the First Amendment.

“Unpopular speech, dangerous speech, speech that threatens the norm,” he told Reason. “Not only do we have that right, our readers have that right. The (Backpage) posters have that right.”

Days before the trial began, the defendants appeared at a hearing during which the government stated the terms of the plea deal offered to each. The defendants were asked in open court whether they accepted it or rejected it.

The hearing is held so a defendant cannot later assert they did not know the terms of a potential deal.

For Lacey, a prosecutor said the deal was he could plead to a single count of conspiracy and face a maximum sentence of five years.

If he proceeded to trial, each of the first 51 counts he faced would come with a potential four- or five-year sentence. Another 20 years was likely for money laundering charges, given the substantial amounts of funds involved.

Magistrate Deborah Fine asked Lacey: “Do you still reject the plea offer?”

Lacey replied with one word: “Yes.”

Reach Ruelas at richard.ruelas@arizonarepublic.com or on X, formerly known as Twitter, @ruelaswritings. Reach Jenkins at jjenkins@arizonarepublic.com or on X @JimmyJenkins.

This article originally appeared on Arizona Republic: Backpage.com executives guilty in prostitution, money-laundering trial