Pair are also accused of using cryptocurrency to launder revenue
By Jacques Billeaud
Associated Press
PHOENIX (AP) — Two journalists who founded an alternative weekly newspaper in Phoenix and later created the lucrative classified site Backpage.com went on trial Wednesday on charges of facilitating prostitution and laundering money in what authorities say was a scheme to knowingly sell ads for sex on the site.
Michael Lacey and James Larkin also are accused of using cryptocurrency and wiring money to foreign bank accounts to launder revenues earned from the site's ad sales after authorities say banks raised concerns that they were being used for illegal purposes.
Lacey and Larkin said the site never allowed ads for sex and used people and automated tools to try to delete such ads. While prosecutors say the site published many ads that depicted children who were victims of sex trafficking, no one in the federal case in Arizona is charged with sex trafficking or child sex trafficking.
In a statement released Monday, Lacey and Larkin called the case against them an "epic government overreach," maintained content on the site was protected by the First Amendment and said the site aided law enforcement whenever when concerns arose about the safety of a woman or child.
"We have the knowledge that we are not guilty and the determination not to bow before the authoritarian mindset that demanded we suppress constitutionally-protected speech and now prosecutes us for having refused to do so," their statement said. "And we will prove our case during the course of this trial."
Lacey and Larkin founded the Phoenix New Times, held ownership interests in other weeklies such as The Village Voice and ultimately sold their newspapers in 2013. But they held onto Backpage, which authorities say generated $500 million in prostitution-related revenue from its inception in 2004 until April 2018 when it was shut down by the government.
Prosecutors say Backpage's operators ignored warnings to stop running prostitution ads, some involving children. They are accused of giving free ads to prostitutes and cultivated arrangements with others who worked in the sex trade to get them to post ads with the company.
Authorities say Backpage employees would identify prostitutes through Google searches, then call and offer them a free ad. The site also is accused of having a business arrangement in which it would place ads on another site that lets customers post reviews of their experiences with prostitutes.
In all, six former Backpage operators have pleaded not guilty to charges of facilitating prostitution. Of the six, Lacey, Larkin and two others have pleaded not guilty to money laundering charges.
The site's marketing director has already pleaded guilty to conspiring to facilitate prostitution and acknowledged he participated in a scheme to give free ads to prostitutes to win over their business. Additionally, the CEO of the company when the government shut the site down, Carl Ferrer, pleaded guilty to a separate federal conspiracy case in Arizona and to state money laundering charges in California.
At trial, the Backpage defendants are barred from bringing up a 2013 memo by federal prosecutors who examined the site and said at the time that they hadn't uncovered evidence of a pattern of recklessness toward minors or admissions from key participants that the site was used for prostitution. In the memo, prosecutors had said witnesses testified Backpage made substantial efforts to prevent criminal conduct on its site and coordinated such efforts with law enforcement agencies. The document was written five years before Lacey, Larkin and the other former Backpage operators were charged in the Arizona case.
A Government Accountability Office report released in June noted the FBI's ability to identify victims and sex traffickers had decreased significantly after Backpage was seized by the government, because law enforcement was familiar with the site and Backpage was generally responsive to requests for information.
Prosecutors said the moderation efforts by the site were aimed at concealing the true nature of the ads. Though Lacey and Larkin sold their interest in Backpage in 2015, prosecutors said the two founders retained control over the site.
The indictment alleges specific instances in which sex was being sold on Backpage.
Prosecutors alleged an ad for a 17-year-old girl was rejected because it accurately reflected her age but was later accepted after it was falsely changed to 19. The indictment said some customers who responded to her ads forced her to perform sexual acts at gun point, choked her and gang raped her. It also alleged another victim, whose age wasn't revealed in the indictment, was killed in 2015 by a customer after being sold for sex on Backpage.
U.S. District Judge Susan Brnovich declined to grant a request by prosecutors for a blanket order allowing evidence of such killings at trial. But she noted that evidence may be allowed if it's relevant and witnesses don't mention the facts of those deaths.
The judge offered an example in the case of a victim who was fatally struck after jumping out of vehicle in 2015 when her trafficker tried to take her to Texas against her will.
Brnovich wrote she would likely let the victim's father testify about his effort to remove his daughter's posting from the site, but he wouldn't be allowed to talk to jurors about the death.
The Backpage operators asked Brnovich to bar prosecutors from presenting evidence of sex trafficking, both of adults and children.
Noting the prejudicial value of such evidence is high, Brnovich concluded she will still allow evidence showing that people were trafficked using the site, but will not allow prosecutors to linger on the details of the abuse suffered by victims.
