Carl Ferrer Admits Backpage.com Aided Prostitution
Carl Ferrer, CEO of Backpage.com, has pleaded guilty in state courts in Texas and California as well as federal court in Arizona. Charged with conspiracy to facilitate prostitution and money laundering, Ferrer has alleged that his fellow co-owners and executives at the company have knowingly flouted state and federal laws against advertising illegal sex services.
Origins of Backpage
The founders of Backpage, James Larkin and Michael Lacey, began as legitimate newspapermen. They founded the New Times in 1970 as an alternative to conservative news media coverage of the Vietnam War protest movement. The New Times was a weekly paper published in Phoenix, Arizona. As the paper grew, Larkin and Lacey hired Ferrer, who worked as director for the classified ads. Over time, the business grew and eventually had 11 different publications. After the launch of Craigslist, print classified ads took a steep nosedive. Hoping to make the leap to online classifieds, Backpage.com was launched as a competitor to Craigslist. Eventually, the media group was sold and Larkin, Lacey and Ferrer focused on the website.
Old Online Immunity Has Gone Away
The Allow States and Victims to Fight Online Sex Trafficking Act, FOSTA for short, was signed into law in April 2018. Previously, websites had immunity if they published ads for illegal activities. Since they were not breaking any laws themselves, it was argued that they were simply the platform used to advertise other people’s illegal activities. Under the new law, trafficking victims or the parents of exploited children were allowed to sue websites that feature ads from sex traffickers and opened the possibility for states to file criminal charges for aiding prostitution.
Ferrer Cooperates with Prosecuters
Ferrer admitted that he and other executives at his organization knew that their customers were selling sex through their online ads. He further admitted that customers were advised to edit their ads to remove overt language and images to avoid scrutiny. He stated that as a whole the company knew the ads were for illegal sex services but it was policy to publicly feign ignorance.
Ferrer traveled to three different states to plead guilty in various courts. In California, he pleaded guilty to charges of money laundering. In Texas, he pleaded guilty on his own behalf to money laundering and, on behalf of Backpage and its related companies, to human trafficking of a teen girl. In Arizona, he entered a guilty plea for conspiracy to facilitate prostitution and money laundering in federal court.
Money Laundering Shell Game
In addition to admitting he helped facilitate prostitution, Ferrer stated that after credit card companies no longer wanted to process payments for adult ads, he helped circumnavigate the banks’ policies. The website made it seem that fees for adult ads were coming from a different company. Then Ferrer transferred the money through different accounts in order to funnel the proceeds back to the company. Some money was even siphoned off into cryptocurrency to avoid detection.
Selling ads for sex services was an enormously profitable venture for Ferrer and his alleged co-conspirators. Financial records obtained by the Department of Justice show that the site has earned over $500 million from prostitution related ads since 2004. Profits increased greatly since 2010 when Craigslist shut down its adult section after public outcry against ads for prostitution. When Backpage’s own adult ads began to draw attention in 2015, executives staged a sale to make it look like two Dutch companies had purchased it. However, the DOJ contends that Ferrer controlled those companies and the $600 million dollars used to make the phony sale actually came from Lacey and Larkin.
The California DOJ states that they reviewed financial records obtained through search warrants that show Larkin and Lacey received “bonuses” from the company’s bank accounts. They stated in court documents that, “In September 2014, Lacey and Larkin each received a $10 million bonus.” The California DOJ further contends that email records show that Lacey, Larkin and Ferrer communicated often and had meetings about the operations of the company.
Prison Sentences
In exchange for his cooperation, prosecutors will only seek up to a 5 year prison sentence for each of Ferrer’s guilty pleas. The prison sentences from the California and federal courts will run concurrently. Texas has also agreed to the five year maximum sentence, however, there has been no agreement to allow this term to run concurrently with his other prison time. As a part of his plea deal with California, Ferrer agreed to forfeit all domains associated with Backpage and take the site down. Federal prosecutors have seized Ferrer’s 10 residences in three states, 35 website domains and 25 bank accounts. Larkin and Lacey remain in custody in California but the other five co-defendants were released on bond.