Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 1 of 9
`
`
`
`
`Paul J. Cambria, Jr. (NY Bar No.1430909, admitted pro hac vice)
`Erin McCampbell Paris (NY Bar No. 4480166, admitted pro hac vice)
`LIPSITZ GREEN SCIME CAMBRIA LLP
`42 Delaware Avenue, Suite 120
`Buffalo, New York 14202
`Telephone: (716) 849-1333
`Facsimile: (716) 855-1580
`pcambria@lglaw.com
`emccampbell@lglaw.com
`Attorneys for Michael Lacey
`
`Gary S. Lincenberg (CA Bar No. 123058, admitted pro hac vice)
`Ariel A. Neuman (CA Bar No. 241594, admitted pro hac vice)
`Gopi K. Panchapakesan (CA Bar No. 279856, admitted pro hac vice)
`BIRD, MARELLA, BOXER, WOLPERT, NESSIM,
`DROOKS, LINCENBERG & RHOW PC
`1875 Century Park East, 23rd Floor
`Los Angeles, California 90067-2561
`Telephone: (310) 201-2100
`Facsimile: (310) 201-2110
`glincenberg@birdmarella.com
`aneuman@birdmarella.com
`gpanchapakesan@birdmarella.com
`Attorneys for John Brunst
`
`Additional counsel listed on next page
`
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF ARIZONA
`
`NO. CR-18-00422-PHX-DJH
`
`DEFENDANTS’ BRIEF IN SUPPORT
`OF DEFENDANTS’ PROPOSED JURY
`VERDICT FORM ON FORFEITURE
`
`
`
`United States of America,
`
` Plaintiff,
`vs.
`
`Michael Lacey, et al.,
`
` Defendants.
`
`
`
`
`
`
`
`
`
`
`
`
`1 1
`
`2 2
`
`3 3
`
`4 4
`
`5 5
`
`6 6
`
`7 7
`
`8 8
`
`9 9
`
`10 10
`
`11 11
`
`12 12
`
`13 13
`
`14 14
`
`15 15
`
`16 16
`
`17 17
`
`18 18
`
`19 19
`
`20 20
`
`21 21
`
`22 22
`
`23 23
`
`24 24
`
`25 25
`
`26 26
`
`27 27
`
`28 28
`
`
`
`

`

`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 2 of 9
`
`
`
`
`Eric Kessler
`KESSLER LAW GROUP
`6720 N. Scottsdale Rd., Suite 210
`Scottsdale, AZ 85253
`Telephone: (480) 644-0093
`eric@kesslerlawgroup.com
`Attorney for Scott Spear
`
`Bruce Feder (AZ Bar No. 004832)
`FEDER LAW OFFICE PA
`2930 E. Camelback Road, Suite 160
`Phoenix, Arizona 85016
`Telephone: (602) 257-0135
`bf@federlawpa.com
`Attorney for Scott Spear
`
`
`
`
`
` 2
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`

`

`
`
`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 3 of 9
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`Defendants file the Defendants’ Brief in Support of Defendants’ Proposed Jury Verdict
`
`Form on Forfeiture, by and through their undersigned counsel. Several fundamental forfeiture
`principles support the Defendants’ position that their request for the jury to determine the
`requisite nexus between the property and any crime of conviction also necessarily requires the
`jury to determine the amount of forfeiture for any asset the jury finds forfeitable. Indeed, it
`appears that the Government agrees with Defendants, as they have not objected to the
`inclusion of the phrase “and if so, how much of that property should be forfeited” in
`Defendants’ proposed modified jury instruction No. 3. See Dkt. 1943 at 4.
`First, it is well-settled that forfeiture is limited to the proceeds that a defendant obtained
`as a result of the crimes of conviction. In Honeycutt v. United States, 581 U.S. 443 (2021), the
`Supreme Court unanimously held that forfeiture under 18 U.S.C. § 853 “is limited to property
`the defendant himself actually acquired as the result of the crime.” Id. at 454. The Ninth
`Circuit has extended this holding to other forfeiture statutes. See, e.g., United States v. Thompson,
`990 F.3d 680, 691 (9th Cir. 2021) (“To forfeit money from Thompson, the district court was
`required by Section 981 to find that the amount forfeited came to rest with him as a result of his
`crimes.” (emphasis added)). Thus, there must be a determination as to what the defendant
`“actually acquired” as to each asset at issue. Honeycutt, 581 U.S. at 454.
`
`Second, the Ninth Circuit limited forfeiture to the criminal proceeds received by a
`defendant even prior to Honeycutt. For example, in United States v. Rutgard, 116 F.3d 1270 (9th
`Cir. 1997), the Ninth Circuit reversed a judgment of forfeiture entered against an
`ophthalmologist convicted of Medicare and insurance fraud. In that case, the government
`sought and obtained forfeiture of an entire bank account on the basis that proceeds of the
`crimes of conviction were deposited in the account. The Ninth Circuit rejected that type of
`forfeiture, recognizing that the “government, not the defendant, had the burden of showing
`the sources of all the moneys in the account” were the proceeds of crime in order to obtain
`forfeiture of the entire account, which the government had failed to do. Id. at 1293.
`
`The jury’s determination of the amount subject to forfeiture will be particularly
`important here, since the government’s own exhibits demonstrate that it seeks to forfeit
`
` 3
`
`

`

`
`
`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 4 of 9
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`numerous properties where it can trace only a very small portion of the asset to funds
`originating with Backpage. For example, the first page of the government’s proposed
`forfeiture phase summary exhibit shows the government seeks to forfeit Michael Lacey’s
`primary residence, valued at approximately $3,000,000, even though the government can
`establish that, at most, $112,461.58 in unspecified proceeds from Backpage may have been
`used to make mortgage payments.
`Third, unless a company is a necessarily illegal enterprise, with no legitimate purpose
`whatsoever (e.g., the Noriega drug cartel), the government must prove that the revenues of the
`company were the proceeds of crime, rather than the proceeds of legal business activities. For
`in Rutgard, the Ninth Circuit rejected the government’s claim that an
`example,
`ophthalmologist’s entire “practice was a fraud” and, therefore, that all revenue earned by the
`practice could be presumed to be the proceeds of crime during the forfeiture phase of the trial.
`See Rutgard, 116 F.3d at 1293. The Ninth Circuit held that the government failed to establish
`that the ophthalmologist’s practice was an illegal company with no legitimate purpose for three
`reasons: (1) the government did not charge the company as a criminal enterprise under RICO,
`nor did it establish a conspiracy among the various employees of the practice who testified;
`(2) the government’s own proof demonstrated that segments of the ophthalmologist’s practice
`had nothing to do with fraud, such as treatments for glaucoma; and (3) the jury acquitted
`certain counts of the indictment and the Ninth Circuit reversed convictions on certain other
`counts. See id. at 1287-90. The government’s failure to prove that each and every aspect of
`the practice was illegal meant that the government could not ask the jury to presume that all
`of the practice’s revenues were criminal proceeds. Instead, the government was required to
`trace the revenue to the crimes of conviction.
`Here, the government’s proof at trial suffers from even greater infirmities. The
`government not only did not charge the case – or put on any proof at trial – that all content
`on Backpage.com was illegal or that all its revenues were criminal proceeds. Indeed, there is
`no dispute that Backpage had hundreds of millions of ads in non-adult sections. The
`Government’s own exhibit, Exhibit 1480, shows that anywhere from 3% to 7% of revenue
`
` 4
`
`

`

`
`
`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 5 of 9
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`earned came from the categories on the website other than adult, including ads for real estate,
`rentals, musicians, automotive, and more.
`Additionally, this Court and the jury must presume that the publication of all content
`on Backpage.com was protected by the First Amendment, unless the government proved
`beyond a reasonable doubt that an ad “propose[d] an illegal transaction.” The government
`introduced evidence about the content of the fifty charged advertisements, as well as some
`additional ads (or ad titles), but the government put on no proof regarding the millions of
`other adult ads posted on the Backpage.com over its 14-year time history or whether any of
`those ads proposed an illegal transaction (much less that all of them did so). Indeed, the
`Government only sought to prove the Travel Act’s “business enterprise” requirement as to
`the 50 ads (eliciting testimony regarding the conduct of a pimp, that he had no other legitimate
`income, etc.). Ferrer’s testimony that all Backpage.com escort ads were “prostitution ads”
`cannot provide a basis for the government to forfeit all revenues earned by Backpage.com.
`Ferrer’s testimony plainly was unreliable for many reasons, including his own admission that
`he had looked at no more than tens of thousands of ads over 14 years on a website that had
`many millions of ads posted each year. Under the Court’s instructions to the jury,
`Backpage.com’s publication of an ad would not lose the protection of the First Amendment
`just because it was an ad associated with prostitution (or, in Ferrer’s words, a “prostitution
`ad”). Rather the ad had to “propose[] an illegal transaction,” which could be determined only
`by examining each ad. Moreover, prostitution is not a federal crime. The government is
`bound by the case it charged under the Travel Act, which requires a showing of specific intent
`to promote a business enterprise involved in prostitution.
`In any event, on cross-examination Ferrer admitted that he was only making what he
`called an “educated guess” about whether adult ads on Backpage.com were associated with
`prostitution. Ferrer’s guesses about ads he never saw, posted by people about whom he knew
`nothing, about is evidence of nothing—not proof beyond a reasonable doubt that every adult
`ad on Backpage.com over a 14-year time period in “proposed an illegal transaction.” Law
`enforcement officers paid for sting ads on the website. Non-profit organizations paid for their
`
` 5
`
`

`

`
`
`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 6 of 9
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`own sting ads on the website. Law enforcement officers testified that there was no probable
`cause to make an arrest based on the face of an ad alone (noting that the ad is the “first step”),
`even when considering one of the charged ads that contained “sex for money” language. In
`other words, the law enforcement officers testified that from the face of an ad they could not
`even determine that there was a “fair probability” that an ad was a solicitation of prostitution.
`Kaley v. United States, 571 U.S. 320, 338 (2014) (“Probable cause, we have often told litigants, is
`not a high bar: It requires only the ‘kind of ‘fair probability’ on which ‘reasonable and prudent
`[people,] not legal technicians, act.’’”). The defense’s expert also testified that there are many
`lawful commercial sex activities and that it is impossible to know whether an ad was an ad for
`prostitution without meeting with the person who published the ad, even if an ad was
`suggestive of prostitution. For all these reasons, to forfeit property the government must
`prove, and the jury must determine, both that the Backpage.com revenues on which its
`proposed forfeitures are based were generated by ads whose publication was not protected by
`the First Amendment and that the property sought to be forfeited is traceable to Travel Act
`violations or a money laundering offense (and that the specified unlawful activity underlying
`such money laundering offenses was a Travel Act violation).
`Fourth, the forfeiture of an entire asset (here, a residence or bank account) on the basis
`that some small amount of tainted funds was used to purchase or maintain a home or was
`deposited into a bank account would be a disproportionate penalty in violation of the
`Excessive Fines Clause of the Eighth Amendment as articulated by the Supreme Court. See
`United States v. Bajakajian, 524 U.S. 321, 337 (1998) (“If the amount of the forfeiture is grossly
`disproportional to the gravity of the defendant’s offense, it is unconstitutional.”). The Ninth
`Circuit has recognized that the Supreme Court’s Excessive Fines Clause analysis applies to any
`forfeiture that is “tied to the commission of a crime.” See, e.g., United States v. $100,348.00 in
`U.S. Currency, 354 F.3d 1110, 1119 (9th Cir. 2004) (recognizing that any forfeiture, even a civil
`forfeiture, that is, among other things, “tied to the commission of a crime,” is punitive and
`subject to excessive fines analysis); United States v. Real Property 874 Gartel Dr., 79 F.3d 918, 924-
`25 (9th Cir. 1998).
`
` 6
`
`

`

`
`
`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 7 of 9
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`Fifth, as a practical matter, only this jury can know and determine the appropriate
`amount of forfeiture the Defendants obtained as a result of any crimes of conviction. This
`jury heard evidence during the guilt-innocence phase of this trial. This same jury then will
`hear evidence concerning the nexus of any particular asset to the crimes of conviction. After
`hearing that evidence, and making the determination that a nexus exists between any particular
`asset and crime of conviction, only this jury would know what it had in mind in terms of the
`amount of the asset(s) at issue as proceeds of crime. For example, the jury could convict any
`Defendant on the Travel Act conspiracy having found that the government established an
`agreement to commit only one of the substantive Travel Act violations. Under that scenario,
`the government only would be entitled to forfeit the proceeds (if any) that a Defendant gained
`from Backpage.com’s sale of ad space for that particular ad. Alternatively, the jury could
`convict any Defendant on the Travel Act conspiracy having found that the government
`established an agreement to commit all 50 substantive Travel Act violations. Under that
`scenario, the government would be entitled to forfeit the proceeds (if any) that a Defendant
`gained from Backpage.com’s sale of ad space for all 50 of those ads. The Government
`continues to impermissibly seek to expand the charged Travel Act conspiracy beyond the 50
`ads, contending that these ads are just “examples.” But the law of the case is clear on this
`(Dkt. 946 at 13; Final Jury Instructions [Travel Act Conspiracy Charge]). And the
`Government’s response – that evidence of alleged marketing practices from 2004 to 2018 is
`relevant – is a non-sequitur. There is a clear distinction between relevant evidence and the scope
`of the charged offenses.
`In sum, only this jury will know the bases for a conviction and, as a result, only this
`jury is able to determine the amount of proceeds that a Defendant obtained “as a result of his
`crimes.” See, e.g., Thompson, 990 F.3d at 691. The same holds true for the money laundering
`conspiracy count. Simply put, this Court will not know what the jury found to be the crime
`of conviction for a conviction under either conspiracy charge and, thus, it will be impossible
`for this Court to determine the amount that could be forfeited by any particular Defendant.
`
`Finally, it is not appropriate to fold the determination of the amount a Defendant must
`
` 7
`
`

`

`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 8 of 9
`
`
`
`
`forfeit as to any particular asset into ancillary proceedings. Ancillary proceedings are the
`proceedings by which courts resolve third-party claims to assets that are subject to forfeiture
`after the entry of a preliminary order of forfeiture. Rule 32.2(c) of the Federal Rules of Criminal
`Procedure (“Rule 32.2”) sets forth the procedures for the assertion and resolution of third-
`party claims. See United States v. Lazarenko, 476 F.3d 642, 648 (9th Cir. 2007) (citing Rule 32.2
`and explaining that “a court adjudicates a third party’s interest in the forfeited property in an
`ancillary proceeding after concluding the criminal case and entering a preliminary order of
`forfeiture”). Indeed, “the purpose of the ancillary hearing is to resolve third party claims.”
`United States v. Arce-Padilla, 981 F. Supp. 2d 852, 854-55 (D. Ariz. 2013) (citing United States v.
`Cox, 575 F.3d 352, 358 (4th Cir. 2009)). Thus, it would be improper under Rule 32.2 and
`controlling Ninth Circuit authority either to require a third party to litigate his or her interest
`in an asset before the Court determines that the asset will be forfeited or to inject the
`determination of the amount of any particular asset subject to forfeiture as a result of a
`defendant’s crimes of conviction into the separate and distinct inquiry the court must
`undertake to resolve third-party claims.
`
`
`For all these reasons, Defendants respectfully request that, in the event of a
`conviction, the jury make the determination of nexus for each asset, including the amount
`subject to forfeiture.
`
`RESPECTFULLY SUBMITTED this 8th day of November, 2023,
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`By:
`
`
`
`
`
`
`
`Paul J. Cambria, Jr.
`Erin McCampbell Paris
`LIPSITZ GREEN SCIME CAMBRIA LLP
`
`/s/ Paul J. Cambria, Jr.
`Paul J. Cambria, Jr.
`Attorneys for Michael Lacey
`
`
`
`Pursuant to the District’s Electronic Case Filing Administrative Policies and Procedures Manual (Jan.
`2020) § II (C) (3), Paul J. Cambria hereby attests that all other signatories listed, and on whose behalf this
`filing is submitted, concur in the filing’s content, and have authorized its filing.
`
` 8
`
`

`

`Case 2:18-cr-00422-DJH Document 1954 Filed 11/08/23 Page 9 of 9
`
`Gary S. Lincenberg
`Gopi K. Panchapakesan
`BIRD, MARELLA, BOXER, WOLPERT, NESSIM,
`DROOKS, LINCENBERG & RHOW, P.C.
`
`By:
`
`/s/ Gary Lincenberg
`Gary Lincenberg
`Attorneys for John Brunst
`
`
`
`Eric W. Kessler
`KESSLER LAW OFFICE
`
`/s/ Eric W. Kessler
`Eric W. Kessler
`Attorneys for Scott Spear
`
`By:
`
`
`
`Bruce Feder
`FEDER LAW OFFICE, P.A.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`By:
`
`/s/ Bruce Feder
`Bruce Feder
`Attorneys for Scott Spear
`
`
`
`On November 8, 2023, a PDF version of this document was
`filed with Clerk of the Court using the CM/ECF System
`for filing and for Transmittal of a Notice of Electronic
`Filing to the to the CM/ECF registrants who have
`entered their appearance as counsel of record
`
` 9
`
`