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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 1 of 73
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`IN THE UNITED STATES DISTRICT COURT
`
`FOR THE DISTRICT OF ARIZONA
`
`United States of America,
`
`
`Plaintiff,
`
`
`v.
`
`Michael Lacey, et al.,
`
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`Defendants.
`
`
`
`No. CR-18-00422-001-PHX-DJH
`
`ORDER
`
`
`
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`A three-month Jury Trial in this matter commenced on August 29, 2023.
`
`(Doc. 1741). At the close of the Government’s case, Defendants orally moved for a
`
`judgment of acquittal on all charges under Federal Rule of Criminal Procedure 29 (“Rule
`
`29”). (Doc. 1903 at 19–93). The Court exercised its discretion under Rule 29(b) to reserve
`
`its ruling until after the Jury returned its verdict. (Doc. 1852).
`
`On November 16, 2023, the Jury returned a verdict that found Defendant Michael
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`Lacey (“Mr. Lacey”) guilty of one count of International Concealment Money Laundering
`
`(Count 100)1 and not guilty of one count of International Promotional Money Laundering
`
`(Count 63). (Doc. 1978). The Jury did not reach a verdict on the remaining counts against
`
`Mr. Lacey, which consisted of charges of Conspiracy to Commit Travel Act violations
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`(Count 1); Travel Act violations (Counts 2–51); Conspiracy to Commit Money Laundering
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`(Count 52); Domestic Concealment of Money Laundering (Counts 53–62); International
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`Promotional Money Laundering (Counts 64–68); and Transactional Money Laundering
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`(Counts 69, 70, 81, 83–84, 86, 88–92 and 94–99). (See Docs. 1978; 1981).
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`
`1 All “Count” references are to the Superseding Indictment (Doc. 230).
`
`

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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 2 of 73
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`
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`The Jury found Defendant Scott Spear (“Mr. Spear”) guilty of Conspiracy to
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`Commit Travel Act violations (Count 1); the Travel Act violations alleged in Counts 2–18;
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`Conspiracy to Commit Money Laundering (Count 52); Domestic Concealment of Money
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`Laundering (Counts 53–62); and Transactional Money Laundering (Counts 71–78, 85,
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`and 93). He was found not guilty as to the Travel Act violations alleged in Counts 19–51,
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`and the money laundering counts alleged in Counts 63–68.
`
`Defendant John Brunst (“Mr. Brunst”) was found guilty of Conspiracy to Commit
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`Travel Act violations (Count 1); Conspiracy to Commit Money Laundering (Count 52);
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`domestic Concealment Money Laundering (Counts 53–62), International Promotional
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`Money Laundering (Counts 64–68); and Transactional Money Laundering (Counts 78–84,
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`86–93). He was found not guilty of all the Travel Act violations alleged in Counts 2–51,
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`and of one count of International Promotional Money Laundering (Count 63).
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`Defendants Andrew Padilla (“Mr. Padilla”) and Joye Vaught (“Ms. Vaught”) were
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`acquitted on all charges in the Superseding Indictment.2
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`Following
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`the verdict, Messrs. Lacey, Brunst, and Spear (collectively,
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`“Defendants”) asked to supplement their oral Rule 29 Motions, which the Court granted.
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`Those supplemental motions are now fully briefed.3 Defendants have also jointly filed a
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`Motion for New Trial (Doc. 2009) under Federal Rule of Criminal Procedure 33
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`(“Rule 33”), which is also fully briefed.4
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`The Court now issues its ruling.5
`
`/ / /
`
`
`
`
`2 In light of their acquittal, Mr. Padilla and Ms. Vaught’s oral Rule 29 motions are denied
`as moot.
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` 3
`
` Each Defendant joined in their co-Defendant’s Supplemental Motion. The briefing on
`Mr. Lacey’s Supplemental Rule 29 Motion is at Docs. 2004; 2020; 2033; the briefing on
`Mr. Spear’s Supplemental Rule 29 Motion is at Docs. 2006; 2021; 2030; and the briefing
`on Mr. Brunst’s Supplemental Rule 29 Motion is at Docs. 2007; 2019; 2029.
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`4 The Government’s Response is at Doc. 2022 and the Defendants’ Reply is at Doc. 2031.
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` 5
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` Defendants each request oral argument on their Motions. The Court finds that further
`oral argument will not aid the Court’s decisional process. See e.g., Partridge v. Reich, 141
`F.3d 920, 926 (9th Cir. 1998); Lake at Las Vegas Investors Group, Inc. v. Pacific. Dev.
`Malibu Corp., 933 F.2d 724, 729 (9th Cir. 1991).
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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 3 of 73
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`
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`I.
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`BACKGROUND6
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`Considered in the light most favorable to the Government, its proof at trial
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`established the following:
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`Launched in 2004 in Phoenix, Arizona, Backpage.com (“Backpage”) was an online
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`website offering classified ads for a variety of goods and services. (Trial Tr., Doc. 1786 at
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`6:6–11). Defendants owned Backpage with Mr. James Larkin (“Mr. Larkin”)7 from its
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`inception in 2004 until the website was sold to Mr. Carl Ferrer (“Mr. Ferrer”) in April of
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`2015. (Trial Tr., Doc. 1786 at 11:23–12:5; 78:25–79:1; Trial Ex. 5). Defendants had
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`leadership roles in Backpage’s parent company Village Voice Media (“Village Voice”)
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`during that time: Mr. Lacey served as Chief Editorial Officer; Mr. Brunst served as Chief
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`Financial Officer (“CFO”); and Mr. Spear was an Executive Vice President (“VP”). (Trial
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`Ex. 5). Mr. Larkin was the Chief Executive Officer (“CEO”). (Id.) From 2004 to 2018,
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`Mr. Ferrer was a project manager at Backpage, then became a sales and marketing director
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`of Backpage. (Trial Tr., Doc. 1786 at 5:25–6:1; 16:4–9). Mr. Spear was Mr. Ferrer’s
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`immediate supervisor. (Id. at 10:5–20). Mr. Ferrer testified that Messrs. Spear, Larkin and
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`Brunst were his superiors. (Id. at 35).
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`Mr. Ferrer testified that Backpage was started as a competitor to Craigslist, an online
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`advertising site that “was eroding into the revenue of [Village Voice] newspapers.” (Trial
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`Tr., Doc. 1786 at 25:24–25). To generate revenue, Backpage initially decided that it would
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`only charge for “Adult” ads. (Id. at 26:10–11). The Adult section on Backpage contained
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`the categories “Female Escorts”; “Male Escorts”; “Transsexual Escorts”; “Body Rubs”;
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`“Adult Jobs”; and “Phone and Web.” (Id. at 6:18–20). Mr. Ferrer characterized the ads in
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`the Female Escort section of Backpage between 2004 and 2009 as prostitution ads.
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`(Id. at 7:10–12). These types of ads were profitable because escorts “needed repeat
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`business” so they would often post their ads every day. (Trial Tr., Doc. 1900 at 96:1–15;
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`6 The Court’s review of the trial evidence was significantly hampered by the fact that
`neither the Government nor Defendants provided specific citations to the Court’s docket
`in their briefings.
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` Mr. Larkin’s death preceded the commencement of trial.
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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 4 of 73
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`95:4–96:19).
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`Messrs. Spear and Ferrer soon realized that Backpage’s “Female Escort” section
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`was by far the most profitable section, and so they focused Backpage’s growth efforts
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`accordingly. (Trial Tr., Doc. 1786 at 90:12–91:22; Trial Exs. 1056, 1056a, 1057; Trial Tr.,
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`Doc. 1900 at 96:1–15). After Craigslist closed its Adult section in 2010, Backpage
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`experienced exponential growth
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`in “revenue
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`from online prostitution ads.”
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`(Trial Tr., Doc. 1793 at 35:23–36:9). From 2010 through 2012, Backpage’s Adult section
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`yielded $138,850,097.36 compared to $208,658.90 from its non-Adult sections, i.e., a
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`94.2% difference in profits. (Trial Ex. 1480).
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`Mr. Ferrer testified at length about Defendants’ involvement in the marketing
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`strategies used to grow and/or maintain Backpage’s Female Escort section; Defendants’
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`efforts to fend off outside groups’ attempts to shut Backpage down; as well as the
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`Defendants’ knowledge of Backpage’s business practices, Backpage’s banking issues, and
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`the sale of Backpage to Mr. Ferrer in 2015.
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`A.
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`“Content Aggregation”
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`Mr. Ferrer stated that Mr. Spear directed the roll-out of Backpage’s “content
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`aggregation” marketing strategy in the early years of Backpage. (Trial Tr., Doc. 1786 at
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`26:16–24). “Content aggregation” was considered the “internal code for stealing ads from
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`Craigslist”—and more specifically, primarily stealing ads from Craiglist’s “Erotic
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`Services” section. (Id.) This strategy required staff to identify an Adult escort ad on
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`Craigslist and repost it on Backpage in hopes that the original posters and any responding
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`users would start paying to post ads on Backpage instead of Craigslist. (Id. at 27:3–14).
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`Mr. Spear and Mr. Ferrer presented the idea to Mr. Brunst as a strategy to meet growth
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`goals in 2009 because Mr. Brunst’s approval was needed to fund the staffing needed to
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`execute this strategy. (Trial Tr., Doc. 1792 at 42:16–43:11; Trial Tr., Doc. 1786 at 30:6–
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`12 and 89:1-90:1–7 (discussing plan to “seed the site, the Female Escorts category, with
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`200 independent escorts”)). Mr. Brunst approved the budget plan and Mr. Spear authorized
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`Mr. Ferrer to use the strategy “in every major metro market in the U.S.” (Trial Tr., Doc.
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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 5 of 73
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`1786 at 29:24–25; Trial Tr., Doc. 1791 at 16:18–20:9; Trial Exs. 10 and 10a). Around
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`2010, when Craigslist dropped its Adult section, this type of content aggregation strategy
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`was no longer necessary because Backpage then had “the monopoly” on Adult ads. (Trial
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`Tr., Doc. 1786 at 20–23).
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`B. Backpage’s Relationship with “The Erotic Review”
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`The “secret sauce” to increasing Backpage’s adult ad revenue, as characterized by
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`Mr. Ferrer, was a hyperlink exchange agreement Backpage had with The Erotic Review
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`(“TER”), a prostitution review website described as “Yelp for prostitution.” (Trial Tr.,
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`Doc. 1786 at 7) (“Johns who frequent prostitutes . . . post reviews in TER”). Starting
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`around 2006 or 2007, when a person posted a review of their experience on TER, TER
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`would include a link to the ad on Backpage, and vice versa. (Trial Tr., Doc. 1786 at 32:22–
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`33:7; 39:12–15; Trial Tr., Doc. 1853 at 134:20–136:9). Under increasing pressure from
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`outside groups to remove links to the TER, Backpage ceased including the hyperlinks in
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`their Adult ads in 2011 or 2012, but still allowed posters to include their TER “ID number.”
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`(Trial Tr., Doc. 1786 at 39:22–24; 40:7–10). TER ID numbers remained on Backpage ads
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`through 2017. (Id. at 40:15). The TER relationship with Backpage also included a “banner
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`ad exchange program” where each website featured banner-like ads for the other on their
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`respective websites. (Id. at 35:18–37:2). For years, Backpage paid TER $4,000 per month
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`as part of this relationship. (Id.)
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`There was evidence showing Messrs. Spear and Brunst were aware of the nature
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`and importance of Backpage’s relationship with TER. Mr. Ferrer discussed the importance
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`of TER referral traffic with Messrs. Spear and Brunst. (Trial Tr., Doc. 1786 at 41:1–6).
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`Mr. Spear was an author of the 2008 budget plan that was presented to Messrs. Larkin and
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`Brunst detailing the TER partnership. That plan noted that Backpage had “struck a deal
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`with TheEroticReview.com, TER, with reciprocal links it created huge brand awareness in
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`this niche industry and increased page views from TER by 120,000 per day.” (Trial Ex.
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`23 at 3; Trial Tr., Doc. 1791 at 70:10–73:20; Trial Tr., Doc. 1972 at 43:12–44:1; Trial Exs.
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`19, 20). Mr. Ferrer also submitted TER invoices to Messrs. Spear and Brunst for approval.
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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 6 of 73
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`(Trial Tr., Doc. 1792 at 27:17–28:6, 35:11–12). Mr. Spear signed the checks for these
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`payments. (Trial Tr., Doc. 1853 at 142:13–143:5). Mr. Spear closely tracked the
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`relationship with TER and according to Mr. Ferrer, Mr. Spear understood that “the traffic
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`from The Erotic Review was very, very important for Backpage’s success.” (Trial Tr.,
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`Doc. 1792 at 65:5–24, 84:24–85:4).
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`Mr. Ferrer also testified that Messrs. Spear, Brunst, and Larkin regularly received
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`Google Analytics reports showing TER as the number one source of non-search engine
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`referrals to Backpage. (Trial Tr., Doc. 1786 at 35:6–12, 41:1–7; Trial Tr., Doc. 1791 at
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`21:21–27:5; Trial Exs. 19, 986, 986a, 1151, 1151a, 1919, 1919a, 1924, 1926).
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`C.
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`“Super Posters”
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`Backpage also developed an affiliate program with what Mr. Ferrer described as
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`bulk prostitution advertisers, or “super posters.” These super posters would have
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`“thousands of prostitution ads that they could bring to the site.” (Trial Tr., Doc. 1786 at
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`41:8–19). Messrs. Larkin and Spear sent Mr. Ferrer to New York City to meet with several
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`of these posters in person. (Id. at 41:20–42:23). In exchange for posting their ads on
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`Backpage, Backpage gave these super posters VIP treatment, including access to managers
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`like Mr. Ferrer who could provide them advice on how to tailor their ads for Backpage.
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`(Trial Tr., Doc. 1786 at 46:23–47:4).
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`D. Efforts to Moderate Explicit Ad Content
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`Mr. Ferrer also testified extensively about Backpage’s efforts to moderate ads that
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`otherwise contained sexual content or express offers for prostitution. He told the Jury that
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`these efforts started as early as 2006 with a PowerPoint prepared by Mr. Spear that aimed
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`at getting rid of ad images depicting sex acts, like “a woman giving a man oral sex.” (Trial
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`Tr., Doc. 1786 at 58:2–19 (stating that Mr. Spear coined a standard of “between Hustler
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`and Playboy . . . [t]hat meant sex act pics needed to go and you could still have full nudity
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`but couldn’t have extreme closeups of genitalia”), 65:1). The removal of such images,
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`however, did not mean the whole ad was removed or that the user was blocked from posting
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`on Backpage. (Id. at 59:3–6, 60:7, 66:7–10). “[T]he moderation department’s main
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`priority was to not ban prostitution advertisers but to provide tools and mechanisms to
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`coach them. It was about growing revenue and not removing illegal content.” (Trial Tr.,
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`Doc. 1824 at 25:18–21). Mr. Spear would direct Mr. Ferrer to scrub ads to edit and remove
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`sex act images and sex act language. (Trial Tr., Doc. 1792 at 9–11). Mr. Ferrer told TER
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`that Mr. Spear wanted the ads to be “less escort-ish”, meaning that if the ads looked less
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`like prostitution they could maintain credibility. (Trial Tr., Doc. 1792 at 60–61; Trial Ex.
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`574). Mr. Ferrer explained that “[w]e wanted to keep that veneer of credibility of being
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`like a Craigslist even though we were entirely -- almost entirely prostitution head-based
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`revenue.” (Trial Tr., Doc. 1792 at 60:25–61:2).
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`Backpage also began sanitizing the site of certain “terms [that] made the ads more
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`obvious prostitution[.]” (Trial Tr., Doc. 1786 at 60:8–10, 60:15–17). For example, the
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`terms “incall and outcall” were terms associated with prostitution and indicated whether
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`the prostitute would come to the customer, or the customer would go to the prostitute.
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`(Trial Tr., Doc. 1923 at 60). Mr. Ferrer testified that they “started removing those words
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`from the ad but not deleting the ad.” (Id. at 60:17–18). Mr. Spear was responsible for
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`Backpage’s terms of use, which he continually modified. (Trial Tr., Doc. 1791 at 14:15-
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`21). He also continued to approve changes to moderation guidelines. (Trial Tr., Doc. 1808
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`at 92:10–19; Trial Ex. 1612b; Trial Tr., Doc. 1810 at 98:14–19; Trial Exs. 725, 725b). Mr.
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`Ferrer said Mr. Spear approved changes to the terms and images that were allowed and
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`sent Mr. Ferrer specific emails with ads “that need to be cleaned up, edited.” (Trial Tr.,
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`Doc. 1791 at 92:71–0; Trial Tr., Doc. 1792 at 10:2–8). Messrs. Spear and Ferrer also had
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`knowledge of specific terms that needed to be changed, for example, changing “Greek”
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`to “G-R-3-3-K” (Trial Tr., Doc. 1972 at 85–88; Trial Exs. 585, 585a); “hooker” to “Female
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`Escort” (Trial Tr., Doc. 1786 at 90–91; Trial Exs. 1056 and 1056a); and using the term
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`“roses” for “cash” (Trial Tr., Doc. 1793 at 13–14). Mr. Ferrer would alert Mr. Spear when
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`local papers raised concerns about terms used in Backpage ads, or when advertisers
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`complained that their ads were being removed for including coded terms. (Trial Tr., Doc.
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`1791 at 27–35; Trial Ex. 2). Mr. Spear was alerted to these issues because he was Mr.
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`Ferrer’s boss and had the ability to resolve the conflict. (Id.)
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`Case 2:18-cr-00422-DJH Document 2063 Filed 04/23/24 Page 8 of 73
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`Mr. Ferrer testified that ad content moderation became increasingly challenging as
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`they had to clean up ads in various markets, like South Carolina, where they were under
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`scrutiny. (Trial Tr., Doc. 1792 at 73–75; Trial Ex. 579). Ultimately, Mr. Spear decided to
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`hire a company called El Camino to assist with ad clean-up efforts. (Trial Tr., Doc. 1793
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`at 86–87). Messrs. Spear, Larkin, and Brunst approved the needed budget increases for
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`content moderation, with Mr. Spear responding to one such request with: “Approved. Go
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`get em.” (Trial Tr., Doc. 1792 at 106:21–107:2; Trial Tr., Doc. 1793 at 31:13). Near the
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`end of 2012, Messrs. Larkin, Brunst, and Spear asked Mr. Ferrer to provide a comparison
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`of revenue growth by sections from October 2010 to November 2012. (Trial Tr., Doc.
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`1811 at 64:6–66:1; Trial Exs. 355, 355b). The comparison showed huge growth in Adult
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`compared to all other sections, which Mr. Ferrer attributed to Backpage’s moderation
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`strategy. (Trial Tr., Doc. 1811 at 65:19–20; 65:23–66:1).
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`In 2012, Backpage hired attorney Elizabeth McDougall to supervise content
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`moderation of Backpage ads.8 Despite her role, Mr. Ferrer said “she was sidelined a good
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`portion” of the time. (Trial Tr., Doc. 1831 at 59:17–60:7; 60:9–10).
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`E.
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`Responses to Public and Law Enforcement Concerns
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`Following the shutdown of the Adult escort ads on Craigslist and subsequent
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`migration of ads to Backpage in 2010 and after several State Attorneys Generals (“AGs”)
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`began criticizing Backpage’s “rampant” prostitution advertising, Backpage started
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`receiving thousands of prostitution investigation subpoenas. (See, e.g., Trial Tr., Doc. 1791
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`at 62:16–25; Trial Tr., Doc. 1786 at 47:9–49:12; Trial Ex. 52). Messrs. Spear, Ferrer, and
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`Larkin had “watched Craigslist be attacked by the Attorneys General and were very
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`concerned that [they were] next[.]” (Trial Tr., Doc. 1786 at 48:18–25, 49:7–15).
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`The number of subpoenas became so plentiful that Messrs. Spear and Brunst
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`approved hiring staff to respond to them. (Trial Tr., Doc. 1791 at 62:11–15, 63:11–21,
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`65:4–9). Mr. Lacey became aware that Backpage was receiving such subpoenas and in
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`April 2010, he asked Mr. Spear whether there was evidence of child trafficking on the site.
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`8 Defendants refused to waive the attorney-client privilege regarding their communications
`with Ms. McDougall.
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`Mr. Spear replied that: “[w]e have had subpoenas that deal with this exact issue. . . . We
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`get a ton of subpoenas that we comply with on a daily basis.” (Trial Ex. 804).
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`Mr. Ferrer testified that they discussed a “slow dance strategy with the Attorney
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`Generals” that Mr. Ferrer described as giving the AGs “very, very little but creat[ing] the
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`impression that we’re doing something,” without harming revenue. (Trial Tr., Doc. 1792
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`at 93:9–22, 94:1–4). To gain the AGs’ “blessing,” Messrs. Larkin and Spear directed Mr.
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`Ferrer to “not throw the baby out with the bathwater” and “implement the changes
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`gradually, [so] we won’t lose revenue[.]” (Trial Tr., Doc. 1795 at 25:20–26:7; Trial Ex.
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`1021; Trial Tr., Doc. 1809 at 30:3–4). Mr. Ferrer continued to meet with Messrs. Larkin
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`and Spear about these changes, communicated the results to staff, and solicited further
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`changes “to get approved by [Mr. Spear].” (Trial Tr., Doc. 1808 at 20:11–14, 22:11–12;
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`Trial Exs. 73, 610).
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`In late 2010, Backpage learned CNN was planning an exposé on Backpage. (Trial
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`Tr., Doc. 1793 at 80:20–21). It showed CNN reporter Amber Lyon posting an ad of herself
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`on Backpage’s Escorts section, using text from an old Backpage ad offering a 12-year-old
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`girl for sex. (Trial Ex. 1052b1). When Lyon posted her ad, her phone immediately
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`“start[ed] ringing off the hook.” (Trial Tr., Doc. 1808 at 59:16–23). Messrs. Lacey, Spear,
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`and Brunst tried to stop rebroadcasts of the story. (Id. at 60:10–62:13). Backpage
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`management watched and discussed the CNN report in early 2011. (Id. at 43:15–44:7).
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`Following the broadcast, Backpage faced more pressure to remove any references
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`to TER. (Trial Tr., Doc. 1808 at 82:7–16). By January 2011, Messrs. Spear and Ferrer
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`agreed that moderators should remove “TER links in ads,” though they still allowed “users
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`to put [in] TER IDs (just no live links).” (Trial Tr., Doc. 1808 at 24:10–19; 82; Trial. Exs.
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`73, 647). Mr. Ferrer testified that removing the links would not hurt revenue because the
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`johns responding to Backpage prostitution ads knew “that when it says ‘highly reviewed’
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`and then an ID number that [TER] is the place to go” to look for the advertiser’s review.
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`(Trial Tr., Doc. 1808 at 25:12–19).
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`Backpage also hired internet safety experts, who recommended screening ads
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`bought with prepaid cards because this was an “indicator [of] a potential trafficking ad.”
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`(Trial Tr., Doc. 1809 at 36:2–8). Messrs. Spear, Larkin, and Ferrer rejected that change,
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`because “up to 70 percent of our transactions came from prepaid cards[.]” (Id. at 36:9–
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`19). They also ignored recommendations to completely remove ads visited from TER. (Id.
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`at 37:13–38:11).
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`F.
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`Backpage’s Banking Problems
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`By 2012, U.S. financial institutions were dropping Backpage as a customer due to
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`its reputation for hosting ads that were resulting in prostitution and human trafficking.
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`(Trial Ex. 2042). In 2013, Backpage was dropped by its U.S.-based credit card processor,
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`Litle. (Trial Tr., Doc. 1786 at 69:17–70:8). That same year, Chase Bank informed
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`Backpage that it “was no longer accepting transactions from Backpage.com, due to their
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`involvement in human trafficking.” (Trial Ex. 173). The banks’ refusal to do business
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`with Backpage meant Backpage had to expend tremendous efforts in finding ways for users
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`to pay for ads. (Trial Tr., Doc. 1812 at 29:7–16). One example that proved successful was
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`Backpage’s acceptance of the cash for credit Vanilla Visa card which enabled anonymous
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`payment for ads. (Trial Tr., Doc 1786 at 75–76).
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`Mr. Ferrer testified that he worked closely with Messrs. Brunst, Spear, and Larkin
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`during this time “to secure credit card processing from Europe.” (Trial Tr., Doc. 1812 at
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`14:22–15:7). For example, after Chase Bank stopped accepting Backpage transactions,
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`Backpage directed Chase credit card purchasers to e-Merchant Pay (“EMP”), a European
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`processor that would “use a different billing descriptor that won’t say Backpage.com on
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`it.” (Trial Tr., Doc. 1812 at 21:7–22; Trial Exs. 173; 1110). In September 2013, Mr. Ferrer
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`wrote Messrs. Brunst and Spear about using Netcash, a Cyprus-based credit card processor.
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`(Trial Tr., Doc. 1812 at 13:3–8; Trial Ex. 1092). In October 2013, Mr. Ferrer exchanged
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`emails with Mr. Brunst, copying Messrs. Larkin and Spear, about getting the CCBill
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`contract signed, and Mr. Ferrer’s discussions with “JetPay” regarding other banking
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`solutions that would enable users to pay for Backpage ads. (Trial Tr., Doc. 1812 at 31:12–
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`37:23; Trial Ex. 752).
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`Backpage also sought the assistance of an outside consultant. In November 2013,
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`Mr. Ferrer sent Messrs. Larkin, Brunst, and Spear the consultant’s recommendations on
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`credit card transactions. (Trial Tr., Doc. 1812 at 37:24–40:13; Trial Ex. 175). Those
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`recommendations included using names, internet addresses, and billing descriptors that
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`would not include the name “Backpage.” (Trial Tr., Doc. 1812 at 38:24–42:22; Trial Ex.
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`175). The recommendations also included “load balancing across many banks with
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`different billing descriptors.” (Id. at 38:10–23; Trial Ex. 175). Mr. Ferrer explained that
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`this meant “adding a lot of banks” and “distributing . . . transactions” to stay below
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`thresholds that would otherwise trigger reviews by Mastercard and Visa. (Trial Tr., Doc.
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`1812 at 38:10–23). In implementing these recommendations, Backpage formed an entity
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`called Classified Solutions in England that could do credit card processing with EMP in
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`Bulgaria; it then spread payments from EMP across other banks including Borgun in
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`Iceland and Bank Frick in Liechtenstein. (Id. at 43:18–44:6; Trial Tr., Doc. 1814 at 76:3;
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`Trial Ex. 6189). Mr. Brunst, who continued to serve as Backpage’s CFO, avoided using a
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`“backpage.com” email address because of the “reputational risk” of being associated with
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`Backpage. (Trial Tr., Doc. 1812 at 14:2–9; 13:9–14:1). Indeed, when a Backpage
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`employee asked Mr. Brunst whether they could replace their “backpage.com” email
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`addresses with “websitetechnologies.com,” Mr. Brunst replied: “We need to think this thru
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`or all the work to separate it from BP will be lost.” (Trial Ex. 177).
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`Backpage executives also “opened up holding companies with innocuous names
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`like Classified Solutions, Payment Solutions, just general-sounding companies” that did
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`not say Backpage. (Trial Tr., Doc. 1812 at 15:12–23; Trial Tr., Doc. 1853 at 74:13–14).
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`Mr. Ferrer testified that Mr. Brunst created a separate “shell company” called Website
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`Technologies, for the purpose of opening bank accounts under a name that was not
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`Backpage. (Trial Tr., Doc. 1814 at 89:8–10; see also Trial Tr., Doc. 1812 at 28:19–26
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`(“We needed a name other than Backpage . . . . Brunst asked me for names and I suggested
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`Website Technologies and that’s the name we ended up using.”); Trial Tr., Doc. 1812 at
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`71:17–72:4 (“[Brunst] set up Website Technologies to handle payroll, 401(k) and to do
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`leases so he wants to ensure that its reputation is protected, not affiliated with Backpage.”);
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`Trial Tr., Doc. 1814 at 89:8–10 (“Posting Solutions was another shell company similar to,
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`like, Website Technologies, very generic sounding company that we could open bank
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`accounts with.”). The money that flowed through Website Technologies, which Mr. Ferrer
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`described as “the same company” as Backpage, derived “from postings in the Female
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`Escorts section primarily.” (Trial Tr., Doc. 1814 at 90:16–22; 11:23–12:4; see also Trial
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`Tr., Doc. 1923 at 138 (Mr. Thai confirming that Website Technologies held Backpage.com
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`revenue)).
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`When US Bank gave notice in April 2014 that it was dropping Backpage, Mr. Brunst
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`informed Messrs. Spear, Ferrer, and others that Backpage would be moving “all banking
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`under Website Technologies at BMO.” (Trial Tr., Doc. 1812 at 72:5–73:4; Trial Exs. 178,
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`178a). That same month, Mr. Ferrer emailed Messrs. Brunst and Spear to tell them that
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`Chase had “figured . . . out” that Backpage had temporarily succeeded in allowing
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`customers to use Chase credit cards for adult ads by using “a different billing descriptor,”
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`“so we just have to change again.” (Trial Ex. 1120; Trial Tr., Doc. 1812 at 90:17–24,
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`91:25–92:4).
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`G.
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`Sale of Backpage to Mr. Ferrer in 2015
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`As early as 2011, the Backpage owners were looking to sell the website, efforts that
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`were led by Mr. Brunst. (Trial Tr., Doc. 1810 at 16:4–16:6, 17:11–18:2). Mr. Brunst asked
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`Mr. Ferrer to help create a PowerPoint presentation to give to Backpage’s potential buyers.
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`(Trial Tr., Doc. 1810 at 15:17–16:6). That PowerPoint included a slide on revenue, which
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`showed that nearly 80% of Backpage’s revenue derived from the Female Escorts section
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`and over 94% of the revenue was generated from the Adult category. (Trial Exs. 120 at
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`15, 17). Mr. Ferrer testified that “[i]n order to sell the site, we couldn’t sell it as a
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`prostitution review site so we had to make it look and sound like a general classified site.”
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`(Trial Tr., Doc. 1810 at 21:23–25). The PowerPoint presentation Brunst created and
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`presented to buyers contained the statement that: “[m]aintaining a vibrant general purpose
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`classifieds site strengthens Backpage’s defensible market position in the Adult category:
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`Creates mainstream environment for site participants and allows ‘plausible deniability’ for
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`exposure.” (Trial Ex. 120 at 17). The Defendants discussed not sharing information of the
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`“prostitution ad marketing activities” with potential buyers. (Trial Tr. Doc. 1786 at 76–
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`77). These early attempts to sell Backpage were ultimately unsuccessful.
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`Mr. Ferrer testified that Backpage revenue from 2014 through 2015 was annually
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`around $150 to $160 million. (Trial Tr., Doc. 1786 at 80:10–17). In April 2015, Messrs.
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`Lacey, Larkin, Brunst, and Spear sold Backpage to Mr. Ferrer for approximately $600
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`million. (Trial Tr., Doc. 1814 at 15:21; Trial Tr., Doc. 1923 at 130:19–21). The sale
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`consisted of two loan agreements: a larger loan representing the sale of the U.S. portion of
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`Backpage (Trial Ex. 5427) and a smaller loan representing the sale of the foreign portion
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`of Backpage (Trial Ex. 5459). Cereus Properties, a company owned by Messrs. Lacey,
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`Larkin, Brunst, and Spear, collected the interest and debt payments from the $600 million
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`loan. (Trial Tr., Doc. 1814 at 90:24–91:3). Mr. Ferrer testified that the source of the money
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`that went to Cereus Properties “was the prostitution ads posted on Backpage.” (Id. at
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`91:16–17).
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`Mr. Ferrer testified that the sale of Backpage was intended to distance the
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`Defendants from Backpage’s business of selling illegal ads for prostitution. But Mr. Ferrer
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`also testified that even after the sale, both Messrs. Brunst and Spear stayed involved in the
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`business of Backpage. For example, after Visa, Mastercard, and American Express
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`dropped Backpage in the middle of 2015, Mr. Brunst assisted Backpage in trying to obtain
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`credit card processing. (Trial Tr., Doc. 1786 at 81:7–16). Mr. Ferrer testified that Mr.
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`Brunst “was involved in the financial problems the company was having and wanted to
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`understand the revenue that was coming in and what our options were for banking and
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`when we might, you know, get the reserves coming from these other credit card
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`processors[.]” (Id. at 81:2–-82:3). Either Mr. Ferrer or Backpage’s CFO had