On April 6, agents with the FBI, the U.S. Postal Inspection Service and the Internal Revenue Service Criminal Investigation Division conducted raids at 10 locations around the country, including a home in the 10600 block of State Route 89A, just north of West Fork trailhead in Oak Creek Canyon, in connection with Backpage. com, an online classifieds website, reportedly involved in prostitution and child sex trafficking.
“Backpage.com is notorious for being the internet’s leading source of prostitution advertisements,” according to a grand jury indictment the U.S. Department of Justice unsealed late Monday, April 9. “Backpage derives the overwhelming majority of its revenue from such ads. These practices have enabled Backpage to earn over $500 million in prostitution-related revenue since its inception.”
Backpage’s owners Michael Lacey and James Larkin, executive vice president Scott Spear, operations manager Andrew Padilla, assistant operations manager Joye Vaught and sales and marketing director Dan Hyer were all charged one count of conspiracy and 50 counts of facilitating prostitution.
Lacey, Larkin, Spear, Hyer and CFO John Brunst also face up to 40 additional charges of money laundering and conspiracy to commit money laundering.
Lacey co-founded the Phoenix New Times, an alternative weekly newspaper, in 1970. Lacey and Larkin grew their newspaper chain nationally, renaming it Village Voice Media Holdings in 2006 after purchasing the New York City based Village Voice.
Online Classifieds
In the early 2000s, the new Craigslist.com disrupted VVMH’s print classified advertising business model, so Lacey, Larkin and a third individual, Carl Ferrer, identified only as “C.F.” in the indictment, created Backpage.com in 2004.
Craigslist shut down its adult section in 2010 due to the prevalence of ads for prostitution and other illegal activities. Backpage made an aggressive push for these ads. The indictment stated Backpage experienced “explosive growth” by “capitalizing on displaced Craigslist ad volume.” Annual revenues grew from $26 million in 2010 to $52 million in 2011, $78 million in 2012, $112 million in 2013 and $134 million in 2014.
Lacey and Larkin sold Village Voice Media Holdings in 2012, but retained ownership of Backpage. Lacey bought the $1.6 million Oak Creek Canyon home in 2013.
The indictment alleges that from 2004 to 2015, Lacey and Larkin oversaw the website’s policies and strategic direction, retained control over the website and received of millions in Backpage-related revenue, despite purportedly selling their interests in Backpage to two Dutch companies in April 2015 — $526 million for the U.S. operations and $77 million for the overseas operations.
However, the two companies were both owned by Ferrer, using borrowed funds from Lacey, Larkin, Spear and Brunst, who through the financial arrangement, gained surreptitious operational control of the website.
Prostitution Ads
The indictment alleges the defendants made prostitution ads on Backpage appear as ads for “escort” services, “adult” companionship, dating or other lawful activities, using a variety of strategies including computerized filters and human “moderators” to edit the wording of ads that explicitly offer sexual services for money.
Internal documents and statements made in private meetings cited in the indictment allegedly reveal the defendants knew the overwhelming majority of the ads involve prostitution.The indictment quotes a document in which Lacey purportedly stated, “Backpage is part of the solution. Eliminating adult advertising will in no way eliminate or even reduce the incidence of prostitution in this country. For the very first time, the oldest profession in the world has transparency, record keeping and safeguards.”
In one internal document, Backpage’s media strategy was described as “Do not acknowledge the prostitution.”
Another document by Padilla, who supervised Backpage’s moderators, threatened to fire any employee who acknowledged in writing that the “escorts” depicted in the website’s ads were actually prostitutes: “Leaving notes on our site that imply that we’re aware of prostitution, or in any position to define it, is enough to lose your job over …. This isn’t open for discussion. If you don’t agree with what I’m saying completely, you need to find another job.”
Investigators stated the defendants were aware of the prostitution: In 2010, Ferrer testified in federal court against a suspect who used the email address “Youngpimpin86” when placing Backpage ads that explicitly promised sex in exchange for money.
Padilla’s emails to staff indicate which ads could be edited, a spreadsheet of 50 terms indicative of prostitution that should be stripped or altered, and numerous emails regarding which graphic images should be deleted and which could remain.
In another email, Padilla criticized contracted moderators in India for “being bad for business” when they deleted too many prostitution ads.
Child Sex Trafficking
Investigators allege many ads depicted children who were victims of sex trafficking. For years, Backpage’s official policy, when presented with an ad featuring the prostitution of a child, was to delete the particular words in the ad denoting the child’s age and publish a revised version, according to the indictment. For instance, Hyer and Padilla noted via email that “Lolita” was “code for an underaged girl,” but that term and others like “teen,” “fresh,” “high school,” “tight,” “young” and “Amber Alert” — a public warning of a child abduction — could be stripped rather than deleting the ad.
In a training document, moderators were instructed not to send emergency alerts to the National Center for Missing and Exploited Children in response to complaints led by the grandparents and extended family members of exploited children, “Neice [sic], nephew, grandchild, cousin, etc., doesn’t count.”
In an email, Padilla wrote to Vaught, “If we don’t want to blow past 500 [referrals to NCMEC] this month, we shouldn’t be doing more than 16 per day.”
On Aug. 31, 2011, Backpage received a letter from the National Association of Attorneys General characterizing Backpage as “a hub” for human trafficking and identified “more than 50 instances, in 22 states over three years, of charges filed against those trafficking or attempting to traffic minors on Backpage.com.”
NCMEC suggested that Backpage provide an automatic warning message whenever a customer searched for particular terms indicative of child prostitution.
Ferrer reportedly acknowledged the proposal was good but stated, “This is a good idea but it is not visible to AGs [state attorneys general] so it has little PR value. It is a low priority.”
The indictment lists selected narrative summaries from 17 unnamed underage victims of child sex trafficking whose ads were placed on Backpage between 2009 and 2016.
Credit card companies stopped processing payments for Backpage in 2015 and other banks canceled accounts, reportedly concerned they were being used for illegal purposes. The website instructed customers to send checks and money orders to a P.O. box owned by a shell company, giving customers “credit” to buy new ads, and wiring the funds to banks in foreign countries, including Liechtenstein, Iceland and the Netherlands, to the defendants’ personal accounts or in and out of cryptocurrency.
Investigators seized 25 bank accounts and shut down 35 Backpageowned websites worldwide.
Ferrer entered a plea agreement, admitting to the money laundering and conspiracy charges, and agreed to shutdown all Backpage-related websites worldwide.
Lacey was released on a $1 million bond. The other suspects were released pending trial. Larkin remains in custody pending a hearing.
