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What you need to know to catch up with the case team attends court hearing in Sacramento

Criminal money laundering charges can move ahead against the team behind, the website California state prosecutors allege is a worldwide portal for the illicit online sex trade.
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Criminal money laundering charges can move ahead against the team behind, the website California state prosecutors allege is a worldwide portal for the illicit online sex trade.

It’s a case – and a legislative battle – that could rewrite the future of free speech online.

The people of the state of California vs. executives of classified advertising website has all the elements of a John Grisham legal thriller. Maverick online publishers turned criminal defendants. Charges of multimillion dollar money laundering schemes related to the illicit sex trade. Powerful politicians hashing out the limits of Constitutional rights in the digital age.

As the case, which is being tried in Sacramento, turns 1 year old this week, The Bee takes a look at its history, its players and what likely will come next.

In simple terms, what is this case about?

It hinges on this question: Did create sex-for-sale content as part of a scheme to turn the site into massive online brothel, as state prosecutors allege, or were the ads appearing on the site republished content created by others and protected by the First Amendment and federal communications statutes?

“They acted in whole or in part to create content – that is the linchpin of the case,” state Attorney General’s prosecutor Maggy Krell argued at a Sacramento Superior Court hearing in November 2016.

But Backpage’s attorneys have argued the federal Communications Decency Act, and its Section 230, which generally grants protections for websites that publish content from third parties, shields the site from prosecution. Attorneys for Backpage called the filing of criminal charges against its executives a “threat to a publisher of free speech.”

Who are the defendants?

Carl Ferrer, CEO of Backpage, is a defendant, along with controlling shareholders Michael Lacey and James Larkin, former owners of the Village Voice and Phoenix New Times. The three are partners in the online venture, which is similar to Craigslist. The site launched in 2004.

Ferrer, Lacey and Larkin were arrested in October 2016 on state Attorney General’s warrants and brought back to Sacramento on charges that Backpage was paid millions of dollars in ad revenue as a front for sex trafficking and prostitution. Ads on Backpage also allegedly peddled children for sex acts.

How did all this come to light?

A three-year joint investigation by California and Texas authorities led to allegations that Ferrer, along with Lacey and Larkin, operated the website knowing that it was being used to advertise prostitution, including ads of adult and child victims of sex trafficking.

“Backpage and its executives purposefully and unlawfully designed Backpage to be the world’s top online brothel,” said then-California Attorney General Kamala Harris, announcing arrests in the case.

Why is this case being tried in Sacramento?

California’s Department of Justice took the lead on the investigation into Backpage. California authorities alleged nearly all of Backpage’s income from January 2013 through March 2015 (and nearly all of Backpage’s California revenue during that time period – about $51 million) came from its adult-services section in the form of illegal posts that state prosecutors said were coded ads selling sex.

In their affidavit, state Attorney General’s prosecutors said 2,900 incidents of suspected child sex trafficking were alleged to have occurred through Backpage since 2012. These incidents had been reported to law enforcement by the National Center for Missing & Exploited Children.

So what were the exact charges?

Ferrer faced 10 felony charges including pimping of a minor, pimping and conspiracy to commit pimping: Lacey and Larkin faced felony charges of conspiracy to commit pimping.

State prosecutors alleged the three knew their site was an online hub for prostitution and helped johns, pimps and prostitutes create sex-selling advertising, coaching them on how to craft ads to avoid unwanted scrutiny.

In December, Sacramento Superior Court Judge Michael Bowman threw out the charges on First Amendment grounds: “The people of the state of California have a strong and legitimate interest in combating human trafficking (but) that legitimate state interest ... is not absolute and must be constrained by the First Amendment.”

“Congress has spoken on this matter,” he added, “and it is for Congress, not this court, to revisit."

But then there were a new set of charges?

In January, state prosecutors filed new charges of money laundering, alleging Backpage created shell companies to hide millions of dollars in ad revenue allegedly earned from pimps, prostitutes and their customers through its adult-services section.

The section was abruptly taken down in January ahead of a congressional investigative report alleging Backpage was the “leading online marketplace for commercial sex.”

State prosecutors also filed 13 counts of pimping and conspiracy to commit pimping, including seven counts in which the alleged victims were children.

Sacramento Superior Court Judge Lawrence Brown, who took over the case from Bowman, threw out the pimping and conspiracy charges in August – again on free speech grounds – commenting on the broad free-speech protections offered under the Communications Decency Act.

“If and until Congress sees fit to amend the immunity law, the broad reach of Section 230 even applies to those alleged to support the exploitation of others by human trafficking,” Brown wrote in August.

Nevertheless, he ruled that charges of money laundering and bank fraud could proceed. “Even the most ardent defenders of a vigorous World Wide Web would have to concede that if a provider engaged in their own criminal acts, versus those of their customers, immunity must fail. And so it is in this case.”

Ferrer, Lacey and Larkin entered not guilty pleas on Aug. 23. Attorneys for Backpage are now asking Brown to block a subpoena calling for records and data prosecutors say show that the three laundered illicit revenue taken in by the site. Brown said he will rule on the subpoena Nov. 1.

How do D.C. politicians fit into this case?

Sens. Rob Portman, R-Ohio, and Richard Blumenthal, D-Conn., recently introduced the Stop Enabling Sex Traffickers Act of 2017 to amend the CDA. The change would enable state law enforcement officials to go after people or businesses that violate federal sex trafficking laws and lift immunity for websites that “assist, support, or facilitate a violation of sex trafficking laws.”

In January, an investigative subcommittee run by Portman issued a damning report on Backpage’s suspected practices, alleging the site hid criminal conduct and was “far more complicit in online sex trafficking than anyone previously knew.” The senators name checked Brown’s Sacramento court ruling, calling on Congress “to act, and to act with urgency, to hold online traffickers accountable for their actions.”

But internet industry groups warn of a wide variety of perils, if so-called “carve-outs” to the CDA were approved, saying in an August open letter: “The value of CDA 230 to the entire internet economy should not be understated. ... Rather than target criminals, including traffickers and buyers of victims, the proposed legislation would have a devastating impact on legitimate online services without having a meaningful impact on ending trafficking crimes.”

Is this the only Backpage lawsuit?

No, there are several civil cases as well. Attorneys for five women who said they were prostituted on Backpage as teenagers sued the website in January alleging they were advertised on the site between 2013 and 2016. Lawsuits were filed in courts in Southern California, Alabama, Texas and Washington state.

Earlier this month, in Seattle, three of the women announced they had settled their lawsuits with Backpage. Civil cases in other states remain.

Darrell Smith: 916-321-1040, @dvaughnsmith