Backpage co-founder Michael Lacey gets five years in prison for money laundering

PHOENIX (CN) — Co-founder and former owner of Backpage.com Michael Lacey was sentenced to five years in federal prison Wednesday morning for his role in operating the controversial classified advertising website that hosted thousands of prostitution ads featuring underage girls.

Former executives Scott Spear and John Brunst will each spend 10 years in federal prison followed by three years probation. U.S. District Judge Diane Humetewa recommended that each defendant be placed in a low-security prison in Arizona.

The Barack Obama appointee also ordered Lacey to pay $3 million in criminal fines.

A jury convicted Lacey on just one count of international concealment money laundering this past November, deadlocking on the other prostitution and money laundering counts he faced. Humetewa nevertheless ran through scores of evidence that the newspaperman and former Phoenix New Times editor was put on notice of the rampant underage sex trafficking on the website.

"You did nothing in the face of all of this. You held fast," Humetewa said, referring to the words tattooed onto Lacey's knuckles. "You didn't do a thing."

She added: "You have shown an inability to at least acknowledge what this is all about. If you would have acknowledged what Backpage was contributing to, perhaps we wouldn't be here."

The defendants were denied release pending appeal. They are expected to self-book to a U.S. Marshall's office by noon on Sept. 11.

On the first day of a two-day sentencing hearing, defense attorney Paul Cambria pleaded with Humetewa to keep Lacey, now 76, out of prison, and instead sentence him to probation or house arrest. 

“A sentence of five years or more is basically a life sentence,” he said.

Spear’s and Brunst’s attorneys asked the same. 

But Destiny Ortiz, who was sold for sex on Backpage when she was just 14, said she doesn’t care how the men behind the site she was trafficked on are treated at the end of their lives. 

“Their actions have affected me and young girls around the country,” the now-27-year-old told Humetewa Tuesday afternoon. “It is very important to me that the men responsible for creating Backpage spend the rest of their lives in jail.”

The court also heard from two mothers of then-underage girls who were sold on the site, one of whom was killed by her trafficker in 2016.

“These are children whose lives you ruined due to caring nothing of humanity,” Yvonne Ambrose told the defendants, looking at them over her shoulder as she spoke at the podium. 

Cambria sympathized with the women but said their fervor is misplaced. 

“Mr. Lacey is not responsible for what happened to those young girls,” Cambria said. Rather than conduct an “experimental prosecution,” the government should instead go after the individual pimps and johns who he says took advantage of a legal business enterprise. 

Backpage was created as a rival to Craigslist in 2004 to sell classified ads to support Lacey’s newspaper empire. While the website sold a variety of ads, most of its revenue was made from its adult escort section, through which thousands of women and girls were sold as prostitutes, often underage and often against their will. Throughout nearly three months of trial, defense attorneys insisted that Backpage did all it could to stop prostitution and sex trafficking on its site, but the government argued that the executives did just enough to avoid prosecution and claim plausible deniability to any illegal conduct. 

The case brought salient questions regarding free speech and internet communications laws, namely whether an internet service provider can be held liable for third-party speech posted on its platform. 

In a written statement, Lacey denied any knowledge of who or what was sold on Backpage, as he was preoccupied managing his multiple newsrooms, including that of the Phoenix New Times. 

“Nonetheless, within the 30 million ads annually, there are people with stories that are difficult to hear without heartache,” Lacey added. 

He lamented the suicide of his business partner and Backpage co-founder Jim Larkin, whose death Lacey blames on the government’s relentless prosecution.

Federal prosecutor Kevin Rapp contested Lacey’s statement, saying Lacey “stopped being a journalist in 2012.”

“He could have remained a newspaperman,” Rapp said on Tuesday. “But he chose Backpage. He chose the money.”

Prosecutor Austin Berry said the defendants ignored numerous warnings from newspapers, politicians and nonprofits of rampant underage sex trafficking on the site.

“They laughed all the way to the bank,” Berry said. “For 14 years.”

Lacey's money laundering conviction involved a $16.5 million payment to a bank in Hungary, which prosecutors say was an attempt to conceal ill-gotten gains from Backpage. The jury reached no verdict on 50 prostitution and 32 other money laundering counts. 

Humetewa later acquitted Lacey of 32 of the 50 prostitution counts he faced because the ads connected to those counts ran after Lacey sold the company to then-CEO Carl Ferrer. The remaining counts will get taken up in a third trial, tentatively set to occur after post-conviction appeals are completed — all of which could take years. 

Spear, former executive vice president of Backpage, was convicted in November on two counts of conspiracy, 17 prostitution counts and 21 money laundering counts. Humetewa acquitted him in April of 11 of the money laundering counts.

Humetewa enhanced Spear’s sentence because five of the 17 prostitution counts on which he was convicted involved a minor. 

Brunst, former chief financial officer, was convicted of conspiracy to facilitate prostitution — but acquitted on each prostitution charge — and 31 counts of money laundering. Humetewa acquitted him of 16 of the money laundering counts. 

Like Spear, Humetewa considered the facts of the prostitution counts involving minors to enhance his sentence on the money laundering counts because he was part of the conspiracy. 

The defendants declined to comment after sentencing.

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