Prosecutors: Backpage.com made millions in prostitution ads

The classified advertising site Backpage.com ignored warnings to stop running advertisements promoting prostitution, sometimes involving children, because the lucrative enterprise brought in half a billion dollars, according to an indictment unsealed Monday.

The charges against Backpage.com founders Michael Lacey and James Larkin, along with five others, accused them of publishing some ads that depicted children who authorities said were sex trafficking victims.

The indictment said the site contended it tried to prevent prostitution ads, but investigators determined that was not the case and that owners declined to take steps to confront the problem.

Backpage.com employees sought to help customers edit their ads to stay within legal limits while still encouraging commercial sex, prosecutors said. Photos and words that were indicative of prostitution were removed before such ads were run, according to the indictment.

"Nevertheless, the Backpage defendants made a financial decision to continue displaying those ads," the indictment said, noting the site has brought $500 million in prostitution-related revenues since its inception in 2004.

Lacey, Larkin and five others who work for the site were indicted on federal charges in what authorities said was a scheme to knowingly facilitate prostitution by running ads for sexual services and using foreign banks to hide revenues.

Last week, federal authorities seized Backpage.com and its affiliated websites.

The indictment said it was implausible for Backpage.com to contend such ads were offering lawful escort services. "I am the type of girl who absolutely adores a man who understands the many desires of a young beautiful woman and how to accommodate a variety of fantasies," one ad read.

The indictment alleges Backpage.com started to launder money a few years ago after banks raised concerns. The indictment alleged the site routed proceeds through unrelated entities, wire money into foreign banks and convert money into cryptocurrency.

Lacey and Larkin are charged with facilitating prostitution and money laundering. Larry Kazan, an attorney representing Lacey, and Cristina Arguedas, a lawyer for Larkin, didn't immediately return a phone call seeking comment.

Executive vice president Scott Spear was charged with facilitating prostitution and money laundering, while chief financial officer John Brunst was charged with money laundering. Sales and marketing director Dan Hyer, operations manager Andrew Padilla and assistant operations manager Joye Vaught also were charged with facilitating prostitution.

The indictment alleged that Padilla threatened to fire any employee who acknowledged in writing that the escorts depicted in ads were actually prostitutes.

Attorney Michael Piccarreta, who represents Padilla, said the case will be important in deciding whether a web host can be held responsible for a third party's behavior. "It's a very important precedent if a media company can be held responsible for what individuals post on their platform," Piccarreta said.

Michael Kimerer, a lawyer for Brunst, and Stephen Weiss, an attorney for Vaught, didn't return a call for comment. There were no lawyers listed in court records for Hyer.

Last year, the website's chief executive Carl Ferrer, along with Lacey and Larkin, pleaded not guilty to money laundering charges in California, where state prosecutors said the website operators had illegally funneled money through multiple companies and created various websites to get around banks that refused to process transactions.

Meanwhile, a California judge dismissed pimping conspiracy and other charges against the Backpage.com operators, saying federal law protecting free speech grants immunity to websites that post content created by others.

In the past, the site's operators challenged the California charges on First Amendment grounds.

Officials have struggled with how to deal with the website without violating free speech protections.

Backpage.com is a Dutch-owned limited liability corporation incorporated in Delaware, but its principal place of business is in Dallas. Federal officials say Backpage.com keeps its bank accounts and servers in Arizona.

Lacey and Larkin are former owners of the Village Voice and the Phoenix New Times. The indictment says Lacey and Larkin purportedly sold their interest in Backpage.com in 2015, though they have retained control over the site.

Lacey and Larkin were arrested in Arizona by then-Sheriff Joe Arpaio's office in 2007 for publishing information about a secret grand jury subpoena demanding information on its stories and online readers.

They won a $3.75 million settlement from county government as a result of their now-discredited arrests.

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Mary Hudetz in Albuquerque and Don Thompson in Sacramento contributed to this report.

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Follow Jacques Billeaud at twitter.com/jacquesbilleaud. His work can be found at https://bit.ly/2GGWEPO.