As allegations increase against Backpage, founders have become big political donors in Arizona The indictment, returned by a grand jury that spent at least 14 months listening to evidence, lists 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. One victim was killed by a customer she met through an ad, Lopez said, during a Friday briefing. Several of the victims were as young as 14 when trafficked, he said. The indictment, Lopez said, also contains more than 40 counts of money laundering. Money, Lopez said, was wired into and out of foreign countries and converted to Bitcoin and other so-called crypto-currencies.
That activity was necessary since, as the indictment contends: “Virtually every dollar flowing into Backpage’s coffers represents the proceeds of illegal activity.” Lacey, according to the indictment, asked an Arizona bank for advice on moving his assets offshore so they wouldn’t be seized by the government. He later wired $16.5 million to a bank account in Hungary, the indictment says.
Lacey and Larkin sold their interest in Backpage in 2015. But, the indictment says, continued receiving “tens of millions of dollars” in Backpage-related money. FBI raids, arrests and a seized website
An FBI employee walks outside the Paradise Valley home of James Larkin, one of the co-founders of Backpage.com, on April 6, 2018.
(Photo: Megan Cassidy/The Republic) Lacey’s charges were first reported by The Republic on Friday , the day his Sedona area home was the site of activity involving FBI agents . On Friday, Lacey’s attorney, Larry Kazan, had not yet seen which of the 93 charges related to his client, as portions of the indictment provided to him were still redacted.
FBI agents were also seen at the Paradise Valley home of Larkin on Friday. The Backpage website, and its associated websites, carried a banner on Friday announcing they had been seized by federal law enforcement agencies. At times, the banner would not be present and Backpage’s normal site appeared.
But users received an error message when clicking on any category. The banner still appeared on the website on Monday.
This screen shot from the Canadian version of Backpage on April 6, 2018, contains what appears to be a notice from federal authorities that the website has been seized. (Photo: backpage.ca) That banner also said the Justice Department earlier would release more information on the case by 3 p.m. Arizona time on Friday.
By that time, officials said in a background briefing, all the accused would have had their initial appearance in court. But, as the court closed on Friday night, a spokesperson for the Department of Justice said in an email that a judge had ruled the case was still under seal and no new information would be forthcoming.
It was not immediately clear what caused the unexpected delay in the case. Besides Lacey, 69, and Larkin, 68, other Backpage executives charged included Scott Spear, 67, a former executive vice president; John “Jed” Brunst, 66, the former chief financial officer; Dan Hyer, 49, the sales and marketing director; Andrew Padilla, 45, the operations manager; and Jaala Joye Vaught, 37, the assistant operations manager.
Spear and Brunst were also former executives of New Times . Larkin, Spear and Brunst appeared for their initial appearance Monday afternoon in federal court. All three pleaded not guilty. Larkin was ordered held until a Thursday detention hearing.
In nearly matching motions, prosecutors said both Larkin and Lacey posed significant flight risks based on the “nature of the charges” and “massive financial resources” and “frequent international travels.” These factors, the prosecutors said, suggest each man “could easily flee the country and use the wealth he has stashed overseas to live out the remainder of his life, in lavish style, as a fugitive.” It appeared, from court documents, that Lacey and Larkin were the only two defendants the government wanted to be detained. Spear and Brunst were ordered released from the courthouse on Monday.
The custody status of Hyer, Padilla and Vaught was not clear. Vaught, according to the Senate report, had supervisory roles over the people moderating ads.
In an 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.” 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.” ‘Make sure our content is not illegal’ 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. New Times grew into a national empire of alternative weeklies.
It eventually bought out the Village Voice in New York City, the most notable publication in the genre. Backpage started as a classified ad website in 2004.
The name comes from the title given to the literal back page of the tabloid, which was filled with classified ads sold at a premium. While some of the classified advertising on Backpage, and its chief competitor, Craiglist, were for automobiles and furniture, the sites became dominated by adult-oriented ads, mostly under the “escorts” section. At the same time, attitudes about prostitution were slowly starting to change. It had been considered a nuisance crime of vice that police would either ignore or tolerate, so long as it was confined to certain parts of the city. But activists and politicians successfully redefined prostitution as domestic sex trafficking. The women were not criminals, but victims in need of rescuing. In 2010, Craigslist, bowing to pressure from law enforcement and advocates, shut down its adult section.
According to an internal history of the company contained in a Senate report, Backpage saw a lucrative opening.
In an email sent to employees in October 2010, Ferrer, the company’s CEO 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.” Larkin, in an email quoted in the indictment, wrote that the shuttering of Craigslist could mean a “deluge of adult content ads for backpage.com.
” Larkin, in the email, referenced some of the seemly ads that would appear in both New Times and Village Voice, noting that adult advertising was “like it or not, in our DNA.” Soon, Backpage became the home for the ads the purported to offer legal escorts as companions. Company appraised at $600M in 2015 According to the indictment, , Backpage employed an automated system that screened out words possibly indicative of illegal activity, rather than passing that information on to law enforcement, investigators concluded. 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. In discussing whether a particular term would be allowed, Padilla, in an email quoted in the indictment, said it “implies some exchange of bodily fluids which kills our ‘companionship’ argument, but I don’t think we’ve ever really gotten in trouble for it.” The business was lucrative.
The adult ads were among the few Backpage charged users to post. According to the indictment, Backpage made $112 million in 2013 and more than $134 million in 2014. A February 2015 appraisal included in the U.S.
Senate report said the company was worth more than $600 million. Employees of Backpage told investigators with the U.S. Senate 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.” Lacey and Larkin sold the New Times chain of newspapers in 2012, but kept Backpage. At the time of the sale, Lacey said that he sold New Times because the furor over Backpage kept him from focusing on journalism. Lacey said in an interview at the time that Backpage attempted to stop children from being sold on the website. “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.” Lacey also said in that interview that the battle for Backpage was a First Amendment issue. The indictment unsealed Monday quotes an editorial that Lacey drafted, saying that Backpage was helping the prostitution industry.
“For the very first time,” he is quoted in the indictment as writing, “the oldest profession in the world has transparency, record keeping and safeguards.” The executive named in the indictment as C.F. edited the paragraph out. Republic reporter Derek Hall contributed to this article.
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