Indictment accuses Backpage founders of aiding prostitution

PHOENIX -- The founders of Backpage.com and five others at the classified site have been indicted on federal charges in what authorities say was a scheme to facilitate prostitution by running ads for sexual services and hiding their revenues. An indictment unsealed Monday alleges that Backpage.com on some occasions had helped customers edit their ads so they would stay within legal limits while still encouraging commercial sex. 

Website founders Michael Lacey and James Larkin are charged with facilitating prostitution and money laundering.

Backpage.com lets users create posts to sell items, seek roommates, participate in forums, list upcoming events or post job openings. It is also known for listings adult escorts and other sexual services, and authorities say advertising related to those services has been extremely lucrative.  

The recently-unsealed indictment, filed last month in the U.S. District Court in Arizona, says Lacey, Larkin, and the five other defendants have attempted to make it appear as if the ads for sexual services on the site were lawful, but called that a "fiction designed to conceal the true nature of Backpage's ads and customers."

"Indeed, the Backpage defendants have admitted -- in internal company documents and in private meetings -- that they knew the overwhelming majority of the website's ads involve prostitution," the indictment reads.

The indictment said many ads published on Backpage.com depicted children who were sex trafficking victims. While the site maintains it diligently tries to prevent prostitution ads, it still allows them and has declined to take steps to confront the problem, the indictment said.   The seven people charged in the federal indictment are accused of trying to sanitize ads by removing photos and words that were indicative of prostitution and then publishing a revised version of the notices. 

The company is accused of laundering money by wiring ad proceeds into foreign bank accounts.  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.

There were no lawyers listed in court records for Spear, Brunst, Hyer and Padilla. Stephen Weiss, attorney for Vaught, didn't immediately return a call Monday seeking comment. 

Larry Kazan, who represents Lacey, didn't return a call seeking comment. There is no listing for Larkin's attorney.

Federal law enforcement authorities seized the online classified site and its affiliated websites on Friday. A notice that appeared Friday afternoon at Backpage.com said the websites were seized as part of an enforcement action by the FBI, U.S. Postal Inspection Service and the Internal Revenue Service. The notice doesn't characterize or provide any details on the nature of the enforcement action. 

CBS Phoenix affiliate KPHO reports that the FBI also confirmed Friday that agents raided Lacey's home in Sedona, Arizona.

Lacey and Larkin already facing state money laundering charges in California. State prosecutors there have said they illegally funneled money through multiple companies and created various websites to get around banks that refused to process transactions. They have pleaded not guilty.     

The California state attorney general's office also had moved to file pimping conspiracy and other charges against the Backpage.com operators.

However, a judge dismissed them, saying they relate to the publishing of sex-related advertisements and could not be filed because of a federal law protecting free speech that 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.