The two lawyers said to be the masterminds behind Prenda Law, Paul Hansmeier and John Steele, have been arrested and charged with a multimillion-dollar extortion scheme.

The two lawyers were charged Wednesday with an 18-count indictment (PDF), describing allegations of fraud, perjury, and money laundering perpetrated between 2011 and 2014. The charges were unsealed and announced today and first reported by the Minneapolis Star-Tribune . Both Hansmeier, 35, and Steele, 45, were arrested earlier today before the indictment was made public.

"The defendants in this case are charged with devising a scheme that casts doubt on the integrity of our profession," said US Attorney Andrew Luger in a statement. "The conduct of these defendants was outrageous—they used deceptive lawsuits and unsuspecting judges to extort millions from vulnerable defendants. Our courts are halls of justice where fairness and the rule of law triumph, and my office will use every available resource to stop corrupt lawyers from abusing our system of justice."

The indictment explains how the defendants "used sham entities to obtain copyrights to pornographic movies—some of which they filmed themselves—and then uploaded those movies to file-sharing websites in order to lure people to download the movies."

Prenda Law sued hundreds of people for copyright infringement, accusing them of illegally downloading pornographic movies. In 2013, US District Judge Otis Wright sanctioned the firm in a Los Angeles case, along with Steele and Hansmeier personally, saying they had perpetrated a fraud on the court. Wright also referred the case to criminal investigators.

Wright's damning order set off a domino effect, with Prenda and its affiliated lawyers facing a long series of judicial sanctions and fee orders in courts around the country. Steele and Hansmeier fought many of the sanctions, but earlier this year, panels of appellate judges at both the 7th Circuit and 9th Circuit ruled against them and said they must pay for hundreds of thousands of dollars in attorneys' fees to defense lawyers who fought their claims.

State Bar investigators took action as well, filing complaints that ended this year with both lawyers having their licenses to practice law suspended. Hansmeier, who built a new legal practice suing small businesses over violations of the Americans With Disabilities Act, filed for bankruptcy last year.

Forgery and identity theft

The basic scheme worked like this: Prenda Law, or one of several attorneys who worked with the firm, would file a copyright lawsuit over illegal downloads against a "John Doe" defendant they knew only by an IP address. They would then use the discovery process to find out subscriber names from the various ISPs around the country. Once they got it, they’d send out letters and phone calls demanding a settlement payment, typically around $4,000, warning the defendant that if they didn't pay quickly, they would face public allegations over downloading porn.

While mass-copyright lawsuits over mainstream media have been a decidedly mixed bag, Prenda's fast-and-loose porn litigation campaign worked well, at least for a few years. In one interview, John Steele said he’d raked in $15 million. That might have been an exaggeration. A spreadsheet revealed in court showed that Prenda made $1.9 million in 2012 alone, and it isn’t clear that included all the accounts.

Once a few of those defendants dug in, lawyered up, and investigated Prenda, the lawsuits started to look questionable. Some key documents in Prenda lawsuits were signed by Steele's former housekeeper, Alan Cooper—but Cooper denied it, saying his signature had been forged. As for the porn movies that were the subject of the lawsuits, they weren't exactly big hits. In fact, forensic analysts found that they may have been uploaded to Pirate Bay by Prenda lawyers themselves as a kind of "honeypot" that could produce the profitable lawsuits they wanted.

A scheme unraveled

The indictment says that Prenda was "nominally owned" by an Illinois lawyer identified in the indictment as "P.D.", which seems to refer to Paul Duffy, the former Prenda associate who died in 2015. But the feds say the firm was controlled by Hansmeier and Steele. The two lawyers were also the "de facto" owners of AF Holdings LLC, Ingenuity 13 LLC, Guava LLC, and several other shell companies that held the copyrights to the pornographic movies that Prenda litigated over.

"When Hansmeier and Steele ensnared someone in their trap, they filed false and deceptive copyright infringement lawsuits that concealed their role in distributing the movies, as well as their significant personal stake in the outcome of the litigation," states the indictment.

Then, they subpoenaed the ISPs and "used extortionate tactics to garner quick settlements from individuals who were unaware of defendants' role in uploading the movie, and often were either too embarrassed or could not afford to defend themselves. When these individuals did fight back, the defendants dismissed the lawsuits rather than risk their scheme being unearthed.

After courts stopped Hansmeier and Steele from suing dozens or hundreds of people at a time for copyright infringement, the two men switched to saying their clients' computer systems had been "hacked." When their tactics were questioned, "the defendants repeatedly lied and caused others to lie in order to conceal the true nature of their scheme," the feds allege.

In all, authorities say Hansmeier and Steele caused at least 200 fraudulent lawsuits to be filed and sought subscriber information for more than 3,000 IP addresses based on "spurious allegation[s]."

Perhaps unable to maintain real pornography producers as clients, Hansmeier and Steele started making their own porn in May 2012. They contracted with adult film actresses to make a few short features with odd but innocuous names, like "Five Fan Favorites" and "A Peek Behind the Scenes at the Show." The films were never distributed commercially, instead being uploaded straight to Pirate Bay.

The two are accused of lying in court to cover up their fraud, as well. The indictment details no less than 14 specific lies that were told under oath, such as Steele's April 2015 deposition testimony, in which he said he "did not run or manage in any way AF Holdings," saying it was run by Mark Lutz, a former paralegal who worked with Steele. Lutz, identified only as M.L. in the indictment, was "merely a figurehead to obscure Hansmeier and Steele's control over AF Holdings."