Richard Ruelas and Megan Cassidy | The Republic | azcentral.com

Arizona Republic

Sacramento County Sheriff' Office

A founder of the New Times tabloid has been charged in Phoenix in the apparent culmination of a federal human-trafficking investigation.

Authorities had spent months probing whether Backpage, the online classified advertising website he co-founded, served as a willing participant in the online sale of sex, including with underage girls.

An attorney for Michael Lacey, Larry Kazan, told The Arizona Republic at the federal courthouse in Phoenix on Friday afternoon that his client had been charged. Kazan said he did not know how many counts Lacey faced because the 93-count indictment was sealed.

The courtroom was closed to the public, and it was not immediately clear what charges are included in the indictment.

On Friday evening, a spokesperson for the Department of Justice said in an email that a judge had ruled the case was still under seal. The Justice Department earlier had said, in a posting on seized Backpage websites, that more information would be released by 3 p.m. Arizona time on Friday.

FBI officials in Phoenix confirmed there had been "law-enforcement activity" at the Sedona-area home of Lacey, one of the co-founders of Backpage.com.

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An Arizona Republic reporter also witnessed FBI activity at the Paradise Valley home of Jim Larkin, another Backpage co-founder.

Backpage website seized

By noon Friday, users started posting on social media screenshots of what appeared to be a federal notice of the seizure of Backpage.

"Backpage.com and affiliated websites have been seized," the headline of the notice read.

backpage.ca

The notice said the seizure was "part of an enforcement action by the Federal Bureau of Investigation, the U.S. Postal Inspection Service, and the Internal Revenue Service Criminal Investigation Division, with analytical assistance from the Joint Regional Intelligence Center."

The notice was no longer present on the United States version of Backpage.com, though an error message appeared. The Canadian version of Backpage still had the Justice Department notice.

Backpage had shut down its adult section in January 2017, the same day Lacey, Larkin and other Backpage executives testified at a U.S. Senate subcommittee hearing. The men refused to answer questions at that hearing

The types of ads that had appeared in the adult section of Backpage — with their racy photos — migrated to the singles section. In recent weeks, in response to a federal law that would have held websites accountable for knowingly facilitating human trafficking, the ads were restricted to a phone number, photos and links to other websites.

Cindy McCain: 'Good day'

Cindy McCain, wife of Sen. John McCain and an outspoken advocate against human trafficking, said she had heard that federal law enforcement officials had raided not only Lacey’s home in the Verde Valley, but every office of Backpage world-wide.

“They’ve confiscated everything and shut the website down,” she said.

McCain called it a “good day” in the fight against human trafficking.

McCain said she and other advocates had worked for years to get Backpage to change its business model, but the company consistently refused.

“I wish that it didn’t have to go this far,” McCain said. “I wish they would have cooperated with us when we tried to get them to see they needed to stop this.

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Elizabeth McDougall, an attorney for Backpage, said Friday evening that she could not comment on the day's events.

Francine Hardaway, a longtime friend of Lacey’s, said the case was “trumped up.”

“It’s ridiculous. It’s completely ridiculous,” she said.

Hardaway said in the last several years, Lacey was making efforts to curb human trafficking, including starting a women’s’ shelter in Los Angeles.

“It was always, ‘Oh my God, this is awful, what can the New Times do to help?’ ” she said, recalling Lacey’s frame of mind. “’Well, the New Times can take credit cards, and those credit cards can be an audit trail so that we can keep the whole thing aboveboard, and the police will have the police will have a way to catch the people who are doing the trafficking.”

Hardaway said her foster daughter had issues when she was a teenager, and said she used to "commiserate" with Lacey about human trafficking.

And he was against human trafficking "completely," Hardaway said. “So, this 'felony pimping' is the most ridiculous thing I have ever heard in my life.”

What internal emails contained

For years, as advocates criticized the website as a forum for prostitution ads, attorneys representing Lacey, Larkin and Backpage.com, asserted the site merely hosted ads that others wrote and was responsible for neither the content nor consequences.

Attorneys for the website further argued that Backpage cooperated with law enforcement and took steps to curb sex trafficking from being conducted on the site.

Federal authorities, though, pointed to internal e-mails they said showed the website actively edited ads with the intention of masking that illegal activity, not preventing it.

Backpage employed an automated system that screened out words possibly indicative of illegal activity, rather than passing that information on to law enforcement, investigators concluded.

Internal e-mails showed that Backpage supervisors would debate whether certain words or phrases were obvious indicators of an exchange of money for sex, or if they were, as one executive wrote, “phrases of nuance.”

Words like “quickie” and “afternoon delight” were allowed, according to the e-mails. Other terms, including “amber alert” and “cheerleader,” were deemed indicative of minors being offered for sex and banned from the site, the e-mails said.

A lucrative empire

The business was lucrative. The adult ads were among the few Backpage charged users to post. Backpage earned $135 million in 2014, according to a U.S. Senate report. A February 2015 appraisal said the company was worth more than $600 million.

Employees of Backpage told investigators with the U.S. Senate that it was common knowledge that prostitution was being conducted on the website. One employee told Senate investigators that efforts to moderate ads amounted to putting “lipstick on a pig.”

A federal grand jury had been presented with evidence against Backpage since at least February 2017, according to court filings in a civil suit filed against Backpage.

Lacey and Larkin, along with the Backpage CEO Carl Ferrer, had previously been charged with financial crimes out of California related to the site. A judge there had thrown out charges that the three conspired to engage in pimping.

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Lacey started New Times while an Arizona State University student. The paper became known for both hard-nosed journalism and an irreverent attitude that skewered the state’s leaders.

New Times grew into a national empire of alternative weeklies. The chain eventually bought the venerated Village Voice in New York City.

Lacey and Larkin sold the newspapers in 2012 to the chain’s editors and publishers. In interviews at the time, Lacey said he did so in order to shield the journalism from the furor over Backpage.

"I was dealing with those issues when I should have been dealing with journalism," Lacey told the Republic at the time.

Lacey said in that interview that Backpage attempted to stop children from being sold on the website. "We try to keep them off the Internet," he said, "but that doesn't mean that they can't subvert it or break the law or violate our terms of use."

Lacey also said in that interview that the battle for Backpage was a First Amendment issue.

Battles with Arpaio

In 2007, while still executives at New Times, Lacey and Larkin were both arrested for publishing an article they asserted exposed constitutional violations by the then-county sheriff and prosecutor.

The story detailed a grand jury subpoena that asked for sweeping information about readers of the tabloid’s website, particularly those who had read articles critical of then-Sheriff Joe Arpaio. The two were arrested on suspicion of violating the secrecy of grand jury matters. But the charges were dropped within days.

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Celebrities arrested in metro Phoenix

Lacey, in an interview following that 2007 arrest, said a fellow inmate in a holding cell asked him why he was in jail. Lacey said he told him, “Writing.”

His answer, if asked this time, would be more complicated.

The Backpage website started in 2004, taking its name from the classified ads that sold for a premium on the literal back page of the printed weekly tabloid, New Times. It was similar to the classified advertising website, Craiglist, in appearance. It also began matching it in attracting adult-oriented advertising.

In 2010, under pressure from law enforcement, Craigslist restricted and subsequently closed its "erotic services" section.

Backpage, according to internal e-mails released to the U.S. Senate under subpoena, saw it as an opportunity.

Craigslist exit opens 'opportunity'

“Craig killed his adult section last night in all US markets,” read an October 2010 e-mail from Backpage CEO Carl Ferrer. “It is an opportunity for us. Also a time when we need to make sure our content is not illegal.”

Backpage experienced a 50 percent growth in ad volume within two months of Craigslist closing its adult section, according to an internal history of the company included in the Senate report. It became the “logical choice for displaced ad posters,” the document said.

In September 2010, more than 20 state attorneys general sent Backpage a letter asking it to follow the lead of Craigslist and also close its adult advertising sections.

Instead, Backpage went into “crisis” mode, according to the internal e-mails.

It contracted with a California-based company to hire workers in India who could moderate its ads. The contact would last two years, according to a U.S. Senate report. At its peak, according to the report, Backpage hired between 50 to 60 moderators who worked staggered shifts around the clock in order to sift through an average of 14,000 ads each day.

The e-mails, according to Senate investigators, demonstrated that Ferrer was concerned that refusing to publish too many ads would result in unhappy customers and a decline in revenue.

Partnering with advocates

USA TODAY

At the same time, Backpage was touting its efforts as a leader in the fight against human trafficking.

The website's general counsel, Elizabeth McDougall, said in a 2012 op-ed in the Seattle Times, that having the erotic ads on Backpage provided a place where law enforcement could monitor ads.

She said Backpage was a “critical ally” in efforts to stop human trafficking.

McDougall had made similar arguments about Craigslist in a 2010 Congressional hearing when she was general counsel for that website.

As Backpage became the leading website for adult advertising, it started becoming the target of civil suits and proposed legislation.

Backpage claimed First Amendment protection, citing a provision of the Communications Decency Act that was aimed at ensuring a free and open exchange of ideas on websites.

The provision was in response to the growing number of websites — Facebook, Twitter, Yelp — that rely on users to write content. The law said such websites that host those writings are not liable for them, so long as they did not create or develop those writings.

The law said that protection applied even if the website edited or moderated the postings, calling those “good faith” efforts to keep out objectionable content.

Backpage successfully used the Communications Decency Act to defend itself against two civil suits and beat back statutes targeting its operations that were passed in three states.

Congress intervenes

In March, Congress passed a bill amending the Communications Decency Act, essentially stripping away that defense. The measure, which is awaiting the signature of President Donald Trump, makes it a crime for someone to use a website “with the intent to promote or facilitate the prostitution of another person…” The sponsors of the bill made no secret that its target was Backpage,

The January 2017 Senate report on Backpage concluded the website had “moved beyond passive publication of third-party content to editing content to conceal illegality.”

Refusal to testify

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Sen. Claire McCaskill, D-Mo., the ranking member of the U.S. Senate Permanent Subcommittee on Investigations, said the “treasure trove” of evidence in the report could serve as a road map for prosecutors to bring charges against the website's operators.

Backpage shut down its adult section in January 2017, just before Lacey, Larkin and Ferrer were ordered to appear before that U.S. Senate subcommittee. Each man refused to answer questions, citing their Fifth Amendment right against self-incrimination.

Lacey and Larkin have also not responded to interview requests from the Republic.

In March 2017, each man filed paperwork that removed their name from homes they had owned. According to the documents, Larkin made the Paradise Valley home he owned with his wife a gift to her as her "sole and separate property." Lacey conveyed his Sedona home to a limited liability company called Creek Hideaway.