Backpage CEO Pleads Guilty: Website Permanently Shut, Will Testify Against Others

Raised eyebrows

When a 93-count indictment against prominent Backpage principals was unsealed on April 9, 2018, a name was conspicuously missing—that of Carl Ferrer, the CEO of Backpage. Ferrer had been at the center of crackdown on Backpage by state and federal authorities. The omission of his name on a long-expected indictment targeting Backpage, its co-founders, execs, and even employees raised questions whether he was cooperating with the authorities.

As documents unsealed by the Justice Department and announcements made by the attorneys general of California and Texas on April 12, 2018 reveal; Ferrer had in fact made plea deals with state and federal governments that started a day before the FBI raided the Arizona home of Michael Lacey, a co-founder of Backpage and seized Backpage.
Ferrer’s plea deals took him on a tour of three states where he pleaded guilty to state and federal charges ranging from conspiracy to facilitate prostitution to money laundering. Furthermore, he agreed to cooperate with authorities in the ongoing prosecution of Backpage’s founders—Michael Lacey and James Larkin.

An infamous reputation

To the general public, Backpage prior to its demise was the second largest classified listing website in the US, second only to Craigslist. However, to law enforcement, prosecutors, Congress, advocacy groups, and critics; it was a more malicious entity.

The Justice department called it “the Internet’s Leading Forum for Prostitution Ads.” Texas Attorney General Ken Paxton called it the “largest online sex trafficking marketplace in the world.” And California Attorney General Kamala Harris called it the “world’s top online brothel.”

The reason for these unflattering labels was that Backpage continued a practice that was previously a mainstay of alternative weekly papers. It hosted ads in the Adult Services and Personals (Dating) section that naturally attracted pimps, sex workers, and traffickers due to its anonymity. Its popularity, especially after Craigslist shut its adult services section in 2010, meant it became the go-to (and perhaps the most visible) platform for prostitution ads (illegal in most parts of the U.S.) and ads for trafficked victims (both over-age and minors).

Complicating an already dire situation was Backpage’s decision to charge fees for posting ads in these sections while ad listings in most of its other ad categories (which constitute the majority of ads) were free. In effect, even though an insight into Backpage’s operations in 2012 revealed that only less than 1 million ads (approx. 11%) of its 9 million ads live on the site on any given day were in the Adult Services category; authorities countered that the website generated $500 million from the Adult Services section since its 2004 inception.

In fact, an internal revenue report revealed that “from January 2013 to March 2015, 99% of Backpage’s worldwide income was directly attributable to the adult section.” To Backpage’s critics, the website was profiting from “prostitution-related revenue” and proceeds from the advertising of trafficked minors.

Backpage argued against this, stating that it had:

• enacted extensive measures to “prevent, screen, and block improper ads” in the section,
• cooperated with law enforcement by responding timely to subpoenas and releasing requested information that helped effect lots of arrests, and
• reported hundreds of ads suspected of advertising a minor to the National Center for Missing and Exploited Children (NCMEC) every month.

More importantly, it maintained that the First Amendment and mainly Section 230 of the Communications Decency Act protected the website from being held liable for content posted by its users.

State and federal authorities flayed Backpage’s efforts as inadequate, not done in good faith, and window dressing. The U.S. Senate Permanent Subcommittee on Investigations (PSI) in a 2017 report pointed to instances where the website would strip out terms such as “Lolita,” “Little Girl,” and even “Amber Alert” that signaled underage trafficking from ads before reposting the scrubbed ads.

California Attorney General Kamala Harris alleged that Backpage “took data from Backpage users and created content for Backpage-affiliated sites like EvilEmpire.com and BigCity.com.” Further investigation found that “Evilempire.com featured photos and contact information from Backpage and offered no apparent way for users to submit content directly.”

Just as damning was a Washington Post exposé detailing how Backpage had hired a contractor to solicit and create sex-related ads, “despite Backpage’s repeated insistence that it had no role in the content of ads posted on its site.”

Although Backpage shut its Adult Services category in 2017, the Dating category soon became the new hotbed of ads that would have been placed in the defunct adult section.

Diverse troubles

Unsurprisingly, for years, Backpage had to contend with lawsuits from various sources, ranging from state authorities to foes who wanted to eliminate the Adult Services category and/or close the website. Backpage successfully challenged these suits in what seemed like a game of Whac-A-Mole. Backpage’s favorite mallet was the Section 230 safe harbor.

Although, Backpage had legal success and its revenue grew steadily, it had to deal with negative publicity (and its attendant complications). Furthermore, the barrage of legal challenges took its toll.
In April 2012, Goldman Sachs sold its 16% stake in Village Voice Media (VVM), a huge alt weekly chain and the parent company of Backpage. A Goldman Sachs spokesperson intimated that the corporation lost “a vast majority” of its $30 million investment in the rushed sale caused by a columnist reporting on the investment bank’s stake in Backpage.

Later that year, co-founders Lacey and Larkin had to sell VVM, which was the largest publishing group in the alternative newspaper publishing category in America. Lacey and Larkin had built VVM from the scratch starting with the Arizona alt weekly [Phoenix] New Times in 1970, and expanded with purpose as they achieved unprecedented success.

In 2015, top credit card companies Visa, MasterCard, American Express cut ties with Backpage following pressure from Cook County Sheriff Tom Dart. Although Backpage sued Dart and won, the credit card companies didn’t go back on their decision. This eventually led to Backpage execs having to deal with money laundering charges as they tried to solve the resultant financial quagmire.

Shocking admissions and far-reaching repercussions

The formidable legal wall Backpage had setup began to show its first cracks in 2017 when Sacramento County Superior Court Judge Larry Brown allowed California state prosecutors to move forward with money laundering charges against Ferrer, Lacey, and Larkin.

Then on March 29, 2018 (a week before Carl Ferrer made his first plea bargain), a court in Massachusetts ruled that Backpage had redrafted an ad that was the subject of a suit; an action that made Backage a content provider, a role that wasn’t covered by CDA 230 protections.

Two days later, another court in Florida ruled that sufficient evidence had been presented to show that certain Backpage actions fell outside the immunity granted by CDA 230 safe harbors.
It is suspected that these legal setbacks and the smooth passage of the FOSTA-SESTA package bill (388-25 vote in the House of Representatives on February 27, 2018 and 97-2 vote in the Senate on March 21, 2018) explicitly meant to target Backage and similar sites accused of facilitating sex trafficking; spurred Ferrer to accept these plea deals.

As part of his federal plea agreement, Ferrer admitted that he had “long been aware that the great majority of” advertisements for “adult” and “escort” services were “in fact, advertisements for prostitution services.”
“Acting with this knowledge,” he continued; “I conspired with other Backpage principals to find ways to knowingly facilitate the state-law prostitution crimes being committed by Backpage’s customers.”

Ferrer then proceeded to state an example where he “worked” with co-conspirators to “create ‘moderation’ processes through which Backpage would remove terms and pictures that were particularly indicative of prostitution and then publish a revised version of the ad.”

He confirmed that “such editing… was merely intended to create a veneer of deniability for Backpage,” and represents only one component of “an overall, company-wide culture and policy of concealing and refusing to officially acknowledge the true nature of the services being offered in Backpage’s “escort” and “adult” ads.” Ferrer also admitted to engaging in “various money laundering offenses.”

As part of his California and Texas plea deals, Ferrer agreed to shut down Backpage permanently as well as every Backpage affiliated website that he could take down within five days. He also agreed to forfeit all domains related to Backpage within 14 days, make all Backpage data available to authorities, and aid authorities in ongoing prosecutions of his co-conspirators.

The federal indictment seeks to seize assets acquired with Backpage-related funds including 10 residences in Arizona, California, Illinois, and Texas; 25 bank accounts; and 35 website domains.

Timeline

• On April 5, Ferrer pleaded guilty to conspiracy to facilitate prostitution and money laundering in a federal court in Phoenix, Arizona. Backpage.com also pleaded guilty to a money laundering conspiracy.
• On April 9, Ferrer pleaded guilty to money laundering in a state court in Corpus Christi, Texas. Backpage and related entities also pleaded guilty to money laundering and human trafficking of a teenage girl.
• On April 12, Ferrer pleaded guilty to the 2017 money laundering charge allowed by Judge Brown to stand against him, Lacey, and Larkin in a state court in Sacramento, California. Afterwards, he was released on bond.

Ferrer faces up to five years in prison and a $250,000 fine in the federal case in Arizona as well as five year terms each in the state cases in California and Texas. His federal plea agreement states that any prison sentence Ferrer faces in all three cases would run concurrently. Furthermore, he would serve all concurrent time in federal custody.

Backpage faces a maximum fine of $500,000 for its money laundering conspiracy plea in the Arizona federal case.

Contrasting reactions

Expectedly, Backpage’s foes hailed Backpage’s shutdown, Ferrer’s guilty pleas, and the indictment of Backpage’s top guns. Maggy Krell, a former assistant attorney general in California who worked on the Backpage case said, “This is such an important step forward for the many people who’ve been combating human trafficking.” “There is no one in the entire world who made more money off sex trafficking than the owners of this website,” she continued.

However, the Sex Workers Outreach Project reacted differently noting that, “The seizure of Backpage is another example of state-sanctioned violence against the sex work community and their families.” “To do this in the name of anti-trafficking is absurd, as this drives trafficking further underground and makes it more difficult to access the most marginalized members of any group of people – whether they be exploited or not.”