'They were prostitution ads': Backpage founder testifies website was used to sell sex

One of the founders of Backpage.com took the stand in federal court in downtown Phoenix on Tuesday as the state’s first witness in a criminal case against his former colleagues: co-founders, managers and employees of the website.

He told the jury point-blank that Backpage ads were "prostitution ads."

The Backpage founders are accused in U.S. District Court of knowingly allowing people to use the website to exchange sex for money.

This is the second trial against the Backpage executives, who include Michael Lacey, the former longtime editor and founder of the Phoenix alternative weekly, the Phoenix New Times. The first trial crumbled when the judge declared a mistrial in 2021.

Lacey faces several counts alleging he facilitated prostitution. He also faces several counts of money laundering and conspiracy, along with other defendants.

Lacey’s longtime newspaper publishing partner, James Larkin, died by suicide July 31, days before the trial was initially scheduled to begin.

Lacey and the other defendants are charged with one count of conspiring to facilitate prostitution for financial gain. They also are charged with publishing 50 specific ads between 2013 and 2018 that the government says facilitated prostitution.

Besides Lacey, those charged include:

Scott Spear, a former executive vice president.

John “Jed” Brunst, the former chief financial officer.

Andrew Padilla, the operations manager.

Joye Vaught, the assistant operations manager.

After opening statements by attorneys for defendants were finished Tuesday morning, Carl Ferrer, the former CEO of Backpage, was called as the state’s first witness.

In 2018, Ferrer pleaded guilty to charges in state courts in California and Texas and federal charges in Arizona. Much of his testimony on Tuesday was focused on explaining admissions made in those plea deals.

Assistant United States Attorney Kevin Rapp had Ferrer begin by pointing out and visually confirming the identities of the former colleagues he was testifying against.

When asked if Lacey was in the courtroom, Ferrer pointed to him and said, “He’s sitting right behind you, wearing a cowboy tie - a bolo tie - black glasses and a white shirt.”

Ferrer, 62, helped launch Backpage with Lacey in 2004, after working in ad sales for other papers. He testified that the idea for the website was “a clone of Craigslist.”

“We started a process called ‘content aggregation,’ which was internal code for stealing ads from Craigslist,” Ferrer testified.

Prosecutors showed the jury a flow chart used by the company with a picture of a vacuum indicating how employees were to take pictures and text directly from Craigslist ads and repost them on Backpage. Those customers were then given a chance to keep listing the ad on Backpage, and Ferrer said the tactic worked.

While Phoenix was the first market, by 2018 Backpage had expanded to hundreds of markets around the world, generating thousands of ad buys every day.

Posting ads on the site for goods and services was mostly free - selling a coffee table, for instance, cost nothing. Backpage made its money by charging for advertisements in the adult section. The category there that Ferrer said generated the “vast majority of revenue” was the female escort section.

When Rapp asked Ferrer to describe the nature of those ads, the former executive did not mince words.

“They were prostitution ads,” he said.

“What did you base that on?” Rapp asked. Ferrer replied that in the early “wild wild west” days of Backpage, the ads contained graphic pictures and text showing and describing explicit sex acts.

“And who was viewing the postings?” Rapp asked.

“Johns,” Ferrer replied. “People who frequent prostitutes.”

Ferrer said the decision by Craigslist to remove its adult services section in 2010 led to Backpage becoming “more of a monopoly in the prostitution category” and as a result, prices went up.

By 2013, Ferrer said the company was making annual revenues of more than $150 million.

Ferrer testified that while he held many titles at Backpage, his role from 2004 to 2018 was always the same: “run the site and hit budget.”

Ferrer testified that under his leadership, the company implemented a series of policies and a system of moderation that gradually removed the racy content and obvious descriptions of prostitution.

The moves came after pressure from the press, meeting with groups who work to combat human trafficking, and - most importantly - seeing state attorneys general go after Craigslist.

“It was a huge development for the company,” Ferrer said. “We were very concerned we were next.”

In response, Ferrer said, “We sanitized the site,” meaning “we made it less obvious prostitution.”

Backpage would hire more than 200 content moderators and use automatic screening tools to monitor the ads, but Ferrer said those who violated standards were never banned from creating another ad.

Ferrer described several ways Backpage worked to increase ad sales, including building a relationship with a website that provided reviews of sex workers “like a Yelp for prostitution.”

Backpage entered into an agreement with the website, called Erotic Review, in which the companies posted ads and links to each other's sites, boosting what Ferrer said was critical “referral traffic.”

Ferrer called the relationship with Erotic Review the “secret sauce” of Backpage’s success. Notably, he said, defendants Spear, Larkin and Brunst were aware of the strategy to cultivate the relationship.

“They knew it was extremely important,” Ferrer said.

Ferrer told the jury about meetings he conducted with so-called “superposters,” meaning Backpage customers who make money by posting thousands of “prostitution ads” for others and paying to have their ads placed at the top of the page. Ferrer recalled meeting executives at a company called Somad in New York City, which was identified as a “superposter.”

“We went during business hours and I observed that many of the (Somad) customers appeared to be in the prostitution industry,” Ferrer said.

Ferrer also claimed to meet with another “superposter” named “Dollar Bill,” who he said was a competitor of Somad, but “was more in the Asian massage parlor niche.”

Superposters would get VIP treatment, according to Ferrer, who said Backpage companies would work with them to change language on ads if they were taken down for being suspected of soliciting prostitution.

Different portraits painted: A website to promote prostitution, or fight it? Opening statements diverge at Backpage trial

When Mastercard and Visa dropped Backpage in 2015 in response to sex-trafficking claims, Ferrer described how they created shell companies overseas to hide the fact that money was still flowing to Backpage.

“I signed agreements with some of the shakiest companies in the world,” Ferrer said of his attempts to maintain access to cash and credit. “Some of them were just thieves.”

Other third parties, he testified, were very beneficial to Backpage’s bottom line.

Ferrer detailed several schemes the company used to keep the cash flowing in, including an elaborate process that involved allowing customers to pay in Starbucks gift cards, which Backpage would then sell to third-party vendors. In other instances, good customers of Backpage would be allowed to run a line of credit, which they would then pay off by sending cashier's checks and “Vanilla Visas” - a name they used for untraceable prepaid cards.

At one point, Ferrer said their credit card processor was shocked to report that “Vanilla Visas” were being used for 70% of the transactions on Backpage.

Ferrer walked the jury through emails and business plans that seemed to further implicate the defendants, including one memo in which the executives discussed the “problem” of sex workers who had discovered they could post ads for free under Backpage’s dating section.

“The prostitutes were posting hooker ads in the dating section and it was going to take a lot of work to move them over to being paying customers,” Ferrer said.

Attorney Bruce Feder, in his opening remarks for the defense of Scott Spear, hinted at how the defense teams would respond to the claims from Ferrer.

He painted Ferrer as the one coming up with policies and guidelines and Spear was simply following orders.

“Ferrer created Backpage, Spear worked for him, and now Ferrer is a witness for the government,” Feder said, mentioning that Ferrer’s plea deal had likely saved him many years of money and given him the chance to retain some of his assets. “Quite an incentive to lie, to try and incriminate people.”

Feder called the case against his client and co-defendants an “experimental prosecution.”

He told the jury to focus on the fact that many of the ads in the case were from after the site was sold to Ferrer. “After the sale of Backpage,” he stressed.

But Ferrer testified that the sale was only on paper, and that he had to borrow money from the previous owners to pay them back. Ferrer testified that the agreement resulted in the previous owners “sweeping” all available cash from the company’s accounts into their own after the sale.

Ferrer’s testimony will continue on Wednesday.

Republic reporter Richard Ruelas contributed to this article.

Have a news tip? Reach the reporter at jjenkins@arizonarepublic.com or at 812-243-5582. Follow him on X, formerly known as Twitter: @JimmyJenkins.

This article originally appeared on Arizona Republic: Backpage CEO takes stand, testifies against colleagues