UNITED STATES DISTRICT COURT

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

_________________

United States of America, )

) No. 2:18-cr-00422-DJH

Plaintiff, )

)

vs. ) Phoenix, Arizona

) August 31, 2023

Michael Lacey, et al., ) 12:39 p.m.

)

Defendants. )

_____________________________ )

BEFORE: THE HONORABLE DIANE J. HUMETEWA, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS

JURY TRIAL - DAY 3, P.M. SESSION

Official Court Reporter:

Jennifer A. Pancratz, RMR, CRR, FCRR, CRC

Sandra Day O'Connor U.S. Courthouse, Suite 312

401 West Washington Street, Spc 42

Phoenix, Arizona 85003-2151

(602) 322-7198

Proceedings Reported by Stenographic Court Reporter

Transcript Prepared by Computer-Aided Transcription

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A P P E A R A N C E S

For the Government:

UNITED STATES ATTORNEY'S OFFICE

By: Kevin M. Rapp, Esq.

Andrew C. Stone, Esq.

Peter S. Kozinets, Esq.

Margaret W. Perlmeter, Esq.

40 N. Central Avenue, Suite 1800

Phoenix, AZ 85004

UNITED STATES DEPARTMENT OF JUSTICE

By: Austin Berry, Esq.

1301 New York Avenue NW, 11th Floor

Washington, DC 20005

For Defendant Lacey:

LIPTSITZ GREEN SCIME CAMBRIA, LLP

By: Paul J. Cambria, Jr., Esq.

42 Delaware Avenue, Suite 120

Buffalo, NY 14202

For Defendant Spear:

KESSLER LAW OFFICE

By: Eric W. Kessler, Esq.

6720 N. Scottsdale Road, Suite 210

Scottsdale, AZ 85253

FEDER LAW OFFICE, PA

By: Bruce S. Feder, Esq.

2930 E. Camelback Road, Suite 160

Phoenix, AZ 85016

For Defendant Brunst:

BIRD MARELLA BOXER WOLPERT NESSIM DROOKS

LINCENBERG & RHOW PC

By: Gary S. Lincenberg, Esq.

Gopi K. Panchapakesan, Esq.

1875 Century Park E, Suite 2300

Los Angeles, CA 90067

For Defendant Padilla:

DAVID EISENBERG, PLC

By: David S. Eisenberg, Esq.

3550 N. Central Avenue, Suite 1155

Phoenix, AZ 85012

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A P P E A R A N C E S (Continued)

For Defendant Vaught:

JOY BERTRAND, ESQ., LLC

By: Joy M. Bertrand, Esq.

P.O. Box 2734

Scottsdale, AZ 85252

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I N D E X

SUMMARY OF COURT PROCEEDINGS PAGE:

Jury Seated

Sidebar Conference

Preliminary Jury Instructions

Opening Statements

Mr. Stone

Mr. Cambria

Mr. Lincenberg

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123

129

146

173

194

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P R O C E E D I N G S

(Proceedings resumed at 12:39 p.m.)

(Defendants present.)

(Prospective jurors not present.)

THE COURT: The record will reflect the presence of

counsel, no -- and the presence of clients of the counsel, and

no juror panel member is present.

Let -- I know that there was -- we're in a bit of a

time crunch. I understand the government has not had a moment

to eat; is that correct?

MS. PERLMETER: We figured it out. I think we are

okay.

THE COURT: I don't want anyone to be light-headed or

not on their game. Because here's what I propose. I

understand that defense counsel took some opportunity to get

something to eat. My court staff did not. Neither did I.

But in any event, what I propose, unless there's some

strong objection, is that we bring the panel members in, we

seat the jury, and then I give them the preliminary

instructions. Of course, place them under oath and see if any

of them have any other issues that they wish to raise. Place

them under oath, give them the preliminary instructions, which

I think all of you now have the revised version of, and then I

was inclined to take a short break, about 30 minutes, to permit

anyone who did not have an opportunity to have a lunch do that.

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Otherwise, if you want to forge ahead into the

government's opening, we can do that and then take a -- about

20-minute break.

MS. PERLMETER: We would greatly appreciate the

opportunity to have lunch after the instructions are read,

before the openings begin.

THE COURT: Okay. That's how we will proceed then.

Is there any objection to that?

All right. And I'll give about a half an hour break

so that both the government counsel and whoever needs a refresh

and my court staff can have that break for lunch as well.

Anything further to be raised?

MR. LINCENBERG: Your Honor, are we going to stop at

4:00 o'clock sharp today?

THE COURT: No. We're going to go forward up through

4:30, as close as we can.

All right. And do recall, we do not have trial

tomorrow. I think Mr. Eisenberg was eager to be here, but --

MR. EISENBERG: I'll come, Your Honor.

THE COURT: Okay. Were there -- I do have the

parties' --

(The Court and the courtroom deputy confer.)

THE COURT: All right. Were there any objections from

the government or any issues related to the defense strikes?

MS. PERLMETER: No, Your Honor.

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THE COURT: All right. And I will ask you

individually, did -- Mr. Eisenberg, did you review the

government's strikes?

MR. EISENBERG: I have, Your Honor.

THE COURT: Any objection?

MR. EISENBERG: No.

THE COURT: Mr. Feder?

MR. FEDER: No.

THE COURT: Mr. Lincenberg?

MR. LINCENBERG: No.

THE COURT: Ms. Bertrand?

MS. BERTRAND: No objection.

THE COURT: Mr. Cambria?

MR. CAMBRIA: No, Your Honor.

THE COURT: All right. And so let us have the panel

return and then we can select our jurors.

(The Court and the courtroom deputy confer.)

THE COURT: Oh, yes. Please gather up the remaining

voir dire lists and return them to Liliana at your earliest

opportunity. She's going to make an inventory of those.

And let me just, before the panel comes in, let me

just say, I've heard all of the objections on the opening

slides. Therefore, I'm not going to entertain any other new

objections. To the extent that you wish to have an objection,

just state "Objection." I will likely say something like,

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"Move forward." I'm not going to entertain any speaking

objections, or I'll give them the admonishment that counsel's

arguments are not evidence. So be mindful of that.

MR. STONE: That's objections to the slides, Your

Honor, or objections to anything that's --

THE COURT: To the slides, to the opening slides. I'm

not going to entertain substantive objections because I gave

you an opportunity to raise those.

MR. STONE: But we will still have the opportunity to

raise objections --

THE COURT: Yes.

MR. STONE: -- to what's being stated?

Thank you.

THE COURT: Please all rise for the jury panel

members.

(Prospective jurors present.)

THE COURT: There is some room in the very front

beyond the two bars separating the well, if you wish to come in

the very front row to be seated. And if you would like to

stand, that's fine.

All right. Please be seated.

Well, first, let me thank those of you who arrived

early and those of you who have been waiting patiently. The

Court again appreciates your diligence and the manner in which

you've acted responsibly during jury service.

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The record will show the presence of Mr. Lacey,

Mr. Spears [sic], Mr. Brunst, Mr. Padilla, and Ms. Vaught,

counsel -- their counsel, and the government's counsel.

And the record will show the presence of the jury

panel, with the roll call waived.

Will the courtroom deputy now please read the numbers

of the jurors who are selected to serve as jurors on this case.

And as your name is called, please come forward and be directed

by my courtroom deputy as to the seat you will occupy in the

jury box.

THE COURTROOM DEPUTY: Ladies and gentlemen, we're

going to fill the top row of the jury box first in numerical

order. There are binders with numbers there that will

correspond to your new assigned number.

Juror No. 2, please come forward. You're now Juror

No. 1.

Juror No. 13, you're now Juror No. 2.

Juror No. 14, you're now Juror No. 3.

Juror No. 25, you're now Juror No. 4.

Juror No. 26, you're now Juror No. 5.

Juror No. 30, you're now Juror No. 6.

Juror No. 31, you're now Juror No. 7.

Juror No. 33, you're now Juror No. 8.

We are now moving to the bottom row of the jury box.

Juror No. 43, you're now Juror No. 9.

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Juror No. 46, you're now Juror No. 10.

Juror No. 49, you're now Juror No. 11.

Juror No. 50, you're now Juror No. 12. Juror No. 50?

Juror No. 52, you're now Juror No. 13.

Juror No. 53, you're now Juror No. 14.

Juror No. 55, you're now Juror No. 15.

And Juror No. 56, you're now Juror No. 16.

THE COURT: All right. I will direct this question to

those of you who have been selected as jurors in this case.

Before we begin this trial, have any of you thought of any

reason whatsoever that anything -- I should say as well --

whatsoever that might affect your ability to be a fair and

impartial juror in this case?

All right. State your -- do we have the microphone

there? Let's bring the microphone over.

And Juror 55, is it?

PROSPECTIVE JUROR: Yes.

THE COURT: And would you state what it is that you

have a concern about?

PROSPECTIVE JUROR: Yes. A financial hardship. I

found out after doing the questionnaire and prior to starting

this process that my employer will only pay me my full salary

for two weeks, not the full length of the trial.

THE COURT: And your -- is this a full-time position?

PROSPECTIVE JUROR: Yes.

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THE COURT: And you have no additional income coming

in beyond that?

PROSPECTIVE JUROR: No. And I'm the sole person in my

household, so I'm the only one paying mortgage, bills,

et cetera. In addition to -- normally I would say I have

savings to rely on; however, I just had to replace my AC unit,

had $10,000 in housing expenses on top of that just in the last

month or so, so it's -- don't have much to rely on,

unfortunately, so going without pay for that long would be

hard.

THE COURT: Well, thank you for that candor. And

Juror 55, you are excused for hardship.

PROSPECTIVE JUROR: Thank you.

THE COURT: Please select the next --

MR. LINCENBERG: Your Honor, may we approach before --

THE COURT: You may.

(At sidebar on the record.)

THE COURT: Let's make some room for Ms. Perlmeter.

Let's have the government counsel. Thank you.

Can you hear me? What is it?

MR. LINCENBERG: Your Honor, we'd like an additional

strike. Based upon the Court's decisions on cause and

hardship, we carefully calculated the number of jurors and

where it would end. Juror No. 57, who is coming up next, was

one of our top persons who we wanted to strike. We did not do

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so because we were basing it on the list of jurors who were

available, so we'd ask that each side get --

THE COURT: 57?

MR. LINCENBERG: 57.

THE COURT: I don't recall -- you raised an objection

to 57?

MR. LINCENBERG: No. No, no, no. We -- when we

discussed which jurors we would like to strike, would be the

peremptory that we would most want to issue, Juror 57 was at

the top of our list. We went through the list of jurors who

were -- the Court had not dismissed and it went up through 56,

I think is what it was. So we exercised our strikes against

those who were within the group.

Now that the Court has had an additional hardship

dismissal, we'd ask that each side be permitted one additional

strike.

THE COURT: Why -- what is the strike objection to 57?

MR. LINCENBERG: It's just a peremptory.

THE COURT: It's a peremptory strike?

MR. LINCENBERG: Yeah, it's not a cause issue.

THE COURT: Ms. Perlmeter? Who wishes to respond?

MR. BERRY: Sorry, Your Honor.

It's unclear to me who the next one is, but if 57 is

actually the next one, because -- I believe because we had

double strikes -- I don't know. We can ask Liliana. But if

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there was double strikes, then 57 would not be the next one, I

believe.

MR. LINCENBERG: I think you're right, but I don't

think there were double strikes.

MR. BERRY: There were none? Okay. Then 57 is

correct. I apologize.

THE COURT: What is your position with regard to an

additional strike?

MR. BERRY: We don't think that that's necessary, Your

Honor. We don't think it's appropriate.

THE COURT: I don't either. I don't think so either.

But tell me again why it was that you made your

decisions up to that point. I don't understand that.

MR. LINCENBERG: Because there were -- because if each

side struck fifteen and nine, we would not get to 57. And the

Court had made the determinations on different cause and

hardship strikes, and just now the Court excused one for cause.

Parties weren't asked to weigh in, but that's not the most

important part of this. It's that -- it's that --

THE COURT: You would have exercised this as a strike?

MR. LINCENBERG: We'd have struck 57.

THE COURT: Okay. So if you are going to do that, I'm

going to, in fairness, give the government an opportunity as

well.

MR. LINCENBERG: I agree.

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THE COURT: So 57, do you have --

MR. BERRY: We have to look. We need to look at --

THE COURT: Look at her list right now.

MR. BERRY: We can do that in two minutes.

THE COURT: Right here is her list.

MR. BERRY: That's not the list that's helpful to us

to know which one -- they obviously have strong feelings about

57.

THE COURT: Leave that for Liliana.

(The Court and the courtroom deputy confer.)

MR. EISENBERG: Your Honor, may I return to my seat?

THE COURT: The next one in line is 59.

MR. BERRY: We don't -- we're not going to exercise

our strike.

THE COURT: You will not? Okay.

So 57 is out.

MR. BERRY: And 58 is already out, so it would be 59.

(End of discussion at sidebar.)

THE COURT: All right. Thank you for your patience,

members of the jury and jury panel. With the removal of

Juror 55, we'll have Juror 56 become Juror No. 15.

Please draw the next juror number for Juror No. 16.

THE COURTROOM DEPUTY: Juror No. 59, please come

forward. You're now Juror No. 16.

THE COURT: All right. Juror No. 59, I will ask you

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the same question I just asked the rest of the juror members.

Before we begin this trial, have you thought of anything that

might affect your ability to serve as a fair and impartial

juror in this case?

PROSPECTIVE JUROR: There is nothing that would

prevent me from serving.

THE COURT: All right. Thank you.

Now, will those of you who have been selected as

jurors please stand and be sworn.

(Jurors sworn.)

THE COURT: All right. Thank you. You may be seated.

To the remaining jury panel, I want to express my deep

gratitude on behalf of the parties in this case, the

individuals involved in it. As you can see, we've gone through

this very careful process. Your service began in earnest when

you completed the detailed questionnaires that you received.

Each one of you, I can tell, took your obligations very

seriously.

Indeed, I will say this: that in this very courtroom

on every given Friday, there are citizenship proceedings, and

when we swear those new citizens in, I often will tell them

that one of their commitments now is to come when asked to

serve on a jury, because now they become a jury of our peers by

virtue of their citizenship.

We simply, in the judicial system, could not operate

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without the participation of our fellow citizens. And so to

that end, I ask you to return to your personal lives

understanding that you have fulfilled that obligation. And I

hope that when you next receive a summons, that you again

participate and you do so in a way that you have done today and

indeed through the beginning of the week.

And so with the gratitude of all of the parties and

the Court, you may now leave and you may go about your lives.

And again, I appreciate it.

Please all rise as the jury panel exits.

All right. Please be seated.

And at this time I do invite those of you who are in

the upstairs gallery, as this is a public proceeding and we do

now have room, you may come down and be in the courtroom

proper.

Now, I'd like to state that if any of our jurors are

from out of town and if you have questions concerning any sort

of accommodation or anything to do with your service, you may

either raise it with Liliana, my courtroom deputy, who you will

become intimately familiar with, or our court administrator. I

think our jury service administration office, the staff there

have done a wonderful job in the past of being very

accommodating and letting you know what to expect and what's

going on, and so they can answer any of your questions.

I do want to, once again, introduce the staff.

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Liliana, who is going to be my courtroom deputy and should be

with me here at all times. You'll get familiar with her.

My law clerks, I actually am going to be joined with a

new law clerk next week, and his name is Ambrose, so you may

see him periodically. But Kayla and Christine have been here

and they will periodically appear.

And certainly if there's something that comes to your

attention again related to anything having to do with this

case, please do not hesitate to raise it to me or tell Liliana

to bring it to my attention.

Now I'm going to give you some preliminary

instructions.

You now are the jury in this case, and I want to take

a few minutes to tell you something about your duties as jurors

and to give you some preliminary instructions. At the end of

the trial, I will give you more detailed written instructions

that will control your deliberations.

When you deliberate, it will be your duty to weigh and

to evaluate all the evidence received in the case, and in that

process, to decide the facts. To the facts as you find them,

you will apply the law as I give it to you, whether you agree

with the law or not.

You must decide the case solely on the evidence and

the law before you. Perform these duties fairly and

impartially. You should not be influenced by any person's

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race, color, religious beliefs, national ancestry, sexual

orientation, gender identity, gender, or economic

circumstances.

Also, do not allow yourself to be influenced by

personal likes or dislikes, sympathies, prejudice, fear, public

opinion, or biases, including unconscious biases. Unconscious

biases are stereotypes, attitudes, or preferences that people

may conscientiously reject but may be expressed without

conscious awareness, control, or intention. Like conscious

bias, unconscious bias can affect how we evaluate information

and make decisions.

Now, this is a criminal case brought by the United

States Government. The United States charges defendants with

conspiracy, violation of the Travel Act, and money laundering.

The charges against defendants are contained in the

indictment. The indictment simply describes the charges the

United States brings against each of the defendants. The

indictment is not evidence and does not prove anything.

Each defendant has pleaded not guilty to the charges

and is presumed innocent unless and until the United States

proves that defendant guilty beyond a reasonable doubt. In

addition, each defendant has the right to remain silent and

never has to prove innocence or present any evidence.

In order to help you follow the evidence, I will now

give you a brief summary of the elements of the crimes that the

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United States must prove to make its case against each charged

defendant.

Count 1: Conspiracy.

Count 1 of the indictment is for conspiring to promote

or facilitate the promotion of a business enterprise involving

prostitution offenses, in violation of the Travel Act, under

Section 1952(a)(3)(A) of Title 18 of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

a reasonable doubt:

First, beginning on or about 2004 and ending on or

about April 2018, there was an agreement between two or more

persons to commit at least one Travel Act offense as charged in

the indictment;

Second, the defendant became a member of the

conspiracy knowing of at least one of its objects and intending

to help accomplish it; and

Third, one of the members of the conspiracy performed

at least one overt act on or after March 28th of 2013 for the

purposes of carrying out the conspiracy.

Counts 2 through 51 of the indictment are for

violating the Travel Act under Section 1952(a)(3) of Title 18

of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

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a reasonable doubt:

First, the defendant used mail or any facility in

interstate or foreign commerce with the intent to promote,

manage, establish, carry on, or facilitate the promotion,

management, establishment, or carrying on of a business

enterprise involving prostitution offenses in violation of

state or federal law;

Second, after doing so, the defendant performed or

attempted to perform an act that did promote, manage,

establish, carry on, or facilitate the promotion, management,

establishment, or carrying on of a business enterprise

involving prostitution offenses.

And further, you may find a given defendant guilty of

the Travel Act offense as charged in Counts 2 through 51 of the

indictment if the United States has proved each of the

following elements beyond a reasonable doubt:

First, a member of the conspiracy committed the Travel

Act offense as charged in that count;

Second, the person was a member of the conspiracy as

charged in Count 1 of the indictment;

Third, the person committed the charged Travel Act

offense in furtherance of the conspiracy;

Fourth, the defendant was a member of the same

conspiracy at the time the Travel Act offense charged in

Counts 2 through 51 was committed; and

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Fifth, the offense fell within the scope of the

unlawful agreement and could reasonably have been foreseen to

be a necessary or natural consequence of the unlawful

agreement.

Count 52 of the indictment is for conspiracy to commit

money laundering, in violation of Section 1956(h) of Title 18

of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

a reasonable doubt:

First, beginning in or around 2004 and ending on or

about April 2018, there was an agreement between two or more

persons to commit at least one crime alleged in the money

laundering conspiracy; and

Second, that the defendant became a member of the

conspiracy knowing of at least one of its objects and intending

to help accomplish it.

Counts 53 through 62 of the indictment are for

concealment money laundering, in violation of

Section 1956(a)(1)(B) of Title 18 of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

a reasonable doubt:

First, the defendant conducted a financial transaction

involving property that represented the proceeds of promoting,

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managing, establishing, carrying on, or facilitating the

promotion, management, establishment, or carrying on of any

business enterprise involving prostitution offenses;

Second, the defendant knew that the property

represented the proceeds of some form of unlawful activity; and

Third, the defendant knew that the transaction was

designed in whole or in part to conceal or disguise the nature,

location, source, ownership, or control of the proceeds of the

specific unlawful activity.

Count 63 through 68 of the indictment are for

transporting funds to promote unlawful activity, in violation

of Section 1956(a)(2)(A) of Title 18 of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

a reasonable doubt:

First, the defendant transported money from a place in

the United States to or through a place outside the United

States; and

Second, the defendant acted with the intent to promote

the carrying on of the specified criminal activity charged in

the indictment; that is, promoting or facilitating the

promotion of any business enterprise involving prostitution

offenses.

Counts 69 through 99 of the indictment are for

transactional money laundering, in violation of Section 1957 of

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Title 18 of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

a reasonable doubt:

First, the defendant knowingly engaged or attempted to

engage in a monetary transaction;

Second, the defendant knew the transaction involved

criminally derived property;

Third, the property had a value greater than $10,000;

Fourth, the property was, in fact, derived from

specified unlawful activity; that is, promoting or facilitating

the promotion of any business enterprise involving prostitution

offenses; and

Fifth, the transaction occurred in the United States.

Count 100 of the indictment is for transporting money

for the purposes of laundering, in violation of

Section 1956(a)(2)(B) of Title 18 of the United States Code.

For a defendant to be found guilty of that charge, the

United States must prove each of the following elements beyond

a reasonable doubt:

First, the defendant transported money from a place in

the United States to or through a place outside the United

States;

Second, the defendant knew that the money represents

the proceeds of promoting or facilitating the promotion of any

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business enterprise involving prostitution offenses; and

Third, the defendant knew the transportation was

designed in whole or in part to conceal or disguise the nature,

location, source, ownership, or control of the proceeds of

promoting or facilitating the promotion of any business

enterprise involving prostitution offenses.

The Travel Act is a specific intent crime, and that

means for each defendant to be found guilty, the government

needs to prove that each defendant specifically intended to

facilitate an activity which the defendant knew to be unlawful

under state law; specifically, promoting or facilitating the

promotion of any business enterprise involved in prostitution.

The evidence you are to consider in deciding what the

facts are consists of:

First, the sworn testimony of any witness;

Second, the exhibits that are received in evidence;

and

Third, any facts to which the parties agree.

The following things are not evidence, and you must

not consider them as evidence in deciding the facts of this

case:

First, statements and arguments of the attorneys;

Second, the questions and objections of the attorneys;

Third, testimony that I instruct you to disregard; and

Fourth, anything you may see or hear when the court is

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not in session, even if what you see or hear is done or said by

one of the parties or by one of the witnesses.

Evidence may be direct or circumstantial. Direct

evidence is direct proof of a fact such as testimony by a

witness about what that witness personally saw or heard or did.

Circumstantial evidence is indirect evidence that -- that is,

it is proof of one or more facts from which you can find

another fact.

You are to consider both direct and circumstantial

evidence. Either can be used to prove any fact. The law makes

no distinction between the weight to be given to either direct

or circumstantial evidence. It is for you to decide how much

weight to give to any evidence.

There are rules of evidence that control what can be

received in evidence. When a lawyer asks a question or offers

an exhibit in evidence and a lawyer on the other side thinks

that it is not permitted by the rules of evidence, that lawyer

may object. If I overrule the objection, the question may be

answered or the exhibit received. If I sustain the objection,

the question cannot be answered or the exhibit cannot be

received.

Whenever I sustain an objection to a question, you

must ignore the question and must not guess what the answer

would have been.

Sometimes I may order that evidence be stricken from

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the record and that you disregard or ignore the evidence. That

means that when you are deciding the case, you must not

consider the evidence that I told you to disregard.

In deciding the facts in this case, you may have to

decide which testimony to believe and which testimony not to

believe. You may believe everything a witness says or part of

it or none of it.

In considering the testimony of any witness, you may

take into account:

First, the witness's opportunity and ability to see or

hear or know the thing testified to;

Second, the witness's memory;

Third, the witness's manner while testifying;

Fourth, the witness's interest in the outcome of the

case, if any;

Fifth, the witness's bias or prejudice, if any;

Sixth, whether other evidence contradicted the

witness's testimony;

Seventh, the reasonableness of the witness's testimony

in light of all the evidence; and

Eighth, any other factors that bear on believability.

You must avoid bias, conscious or unconscious, based

on a witness's race, color, religious belief, national

ancestry, sexual orientation, gender identity, gender, or

economic circumstance in your determination of credibility.

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The weight of the evidence as to a fact does not

necessarily depend on the number of witnesses who testify about

it. What is important is how believable the witnesses are and

how much weight you think their testimony deserves.

I will now say a few words about your conduct as

jurors.

First, keep an open mind throughout the trial, and do

not decide what the verdict should be until you and your fellow

jurors have completed your deliberations at the end of the

case.

Second, because you must decide this case based only

on the evidence received in the case and on my instructions as

to the law that applies, you must not be exposed to any other

information about the case or to the issues it involves during

the course of your jury duty.

Thus, until the end of the case or unless I tell you

otherwise, do not communicate with anyone in any way and do not

let anyone else communicate with you in any way about the

merits of the case or anything to do with it.

This restriction includes discussing the case in

person, in writing, by phone, tablet, or computer, or any other

means, via email, via text messaging, or any internet chat

room, blog, website, or application, including but not limited

to Facebook, YouTube, X formerly known as Twitter, Instagram,

LinkedIn, Snapchat, TikTok, or any other forms of social media.

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This restriction also applies in communicating with your fellow

jurors until I give you the case, including your family

members -- excuse me.

This restriction also applies to communicating with

your fellow jurors until I give you the case for deliberation,

and it applies to communicating with everyone else, including

your family members, your employer, the media or press, and the

people involved in the trial, although you may notify your

family and your employer that you have been seated as juror in

this case and how long you expect the trial to last.

But if you are asked or approached in any way about

your jury service or anything to do about the case, you must

respond that you have been ordered not to discuss the matter.

In addition, you must report the contact to the Court.

Because you will receive all of the evidence and legal

instruction you properly may consider to return a verdict, do

not read, watch, or listen to any news or media accounts or

commentary about the case or anything to do with it, although I

have no information that there will be news reports about this

case. Do not do any research such as consulting dictionaries,

researching the internet, or using other reference materials,

and do not make any investigation or in any other way try to

learn about the case on your own.

Do not visit or view any place discussed in this case,

and do not use the internet or any other resource to search for

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or view any place discussed during the trial.

Also, do not do any research about this case, the law,

or the people involved, including the parties, the witnesses,

or the lawyers, until you have been excused as jurors.

If you happen to read or hear anything touching on

this case in the media, turn away and report it to me as soon

as possible. The lawyers and parties have been given the same

instruction about not speaking with you jurors, so do not think

they being unfriendly to you.

When you go home tonight and family and friends ask

what the case is about, remember, you cannot speak with them

about the case. All you can tell them is that you are on a

jury, the estimated schedule for trial, and that you cannot

talk about the case until it is over.

These rules protect each party's right to have this

case decided only on the evidence that is presented here in

court. Witnesses here in court take an oath to tell the truth,

and the accuracy of their testimony is tested through the trial

process.

If you do any research or investigation outside the

courtroom or gain any information through improper

communications, then your verdict may be influenced by

inaccurate, incomplete, or misleading information that has not

been tested by the trial process.

Each of the parties is entitled to a fair trial by an

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impartial jury, and if you decide the case based on information

not presented in court, you will have denied the parties a fair

trial. Remember, you have taken an oath to follow the rules,

and it is very important that you follow these rules. A juror

who violates these restrictions jeopardizes the fairness of

these proceedings, and a mistrial could result that would

require the entire trial process to start over.

If any juror is exposed to any outside information,

please notify the Court immediately.

At the end of the trial, you will have to make your

decision based on what you recall of the evidence. You will

not have a written transcript of the trial, so I urge you each

to pay close attention to the testimony as it is given.

If you wish, you may take notes to help you remember

the evidence. If you do take notes, please keep them to

yourselves until you and your fellow jurors go to the jury room

to decide the case. Do not let note-taking distract you from

being attentive. When you leave court for recesses, your notes

should be left in the jury room. No one will read your notes.

Whether or not you take notes, you should rely on your

own memory of the evidence. Notes are only to assist your

memory. You should not be overly influenced by your notes or

those of your fellow jurors.

Now, although the defendants are being tried together,

you must give separate consideration to each defendant. In

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doing so, you must determine which evidence in the case applies

to each defendant, disregarding any evidence admitted solely

against some of the other defendants. And the fact that you

may find one of the defendants guilty or not guilty should not

control your verdict as to any other defendant.

Now, during the trial, I may need to take up some

legal matters with the attorneys privately, either by having a

conference at the bench when the jury is present in the

courtroom or by calling a recess. Please understand that while

you are waiting, we are working. The purpose of these

conferences is not to keep relevant information from you but to

decide how certain evidence is to be treated under the rules of

evidence and to avoid confusion and error.

Of course we will do what we can to keep the number

and length of these conferences to a minimum. I may not always

grant an attorney's request for a conference, and do not

consider my granting or denying a request for a conference to

be any indication of my opinion of the case or what your

verdict should be.

I'm going to give you an outline of the trial now.

And I'll give you this outline with the caveat of the

following: My courtroom staff and a number of the attorneys

have not had lunch yet. We've all been working diligently

since 8:45, and so I promised I would at least break for about

a half an hour before we begin the next phase, and so I want to

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alert you to that.

So we will proceed as follows:

First, each side may make an opening statement. An

opening statement is not evidence. It is simply an outline to

help you understand what the parties expect the evidence will

show. A party is not required to make an opening statement.

The government will then present evidence, and counsel

for the defendant may cross-examine. Then, if the defendant

chooses to offer evidence, counsel for the government may

cross-examine.

After the evidence has been presented, the attorneys

will make closing arguments, and I will instruct you on the law

that applies to the case.

After that, you will go to the jury room to deliberate

on your verdict.

And so now, members of the jury, my courtroom deputy

will escort you to the room where you will convene when you are

outside of the trial, when you're not in this courtroom. It's

directly behind here. You've seen that room before.

And you will -- again, I'm going to always say this.

You're going to hear me repeat it throughout the trial.

Continue to keep an open mind. When we come back in a half

hour's time, the government will make its opening statement.

I told counsel that I intend to hold trial up through

4:30. That may adjust a bit depending on if someone's in the

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middle of an opening statement, I may give them a little

leeway, but just keep in mind that's an approximate as to when

we will end for today.

But with that, please all rise for the jury.

(Jury not present.)

THE COURT: All right. We will stand in recess. I

ask you to be back here at five after the hour and be ready for

your opening statements.

MS. BERTRAND: Your Honor, before we break, I want to

ask the Court to confirm that witnesses who have not yet

testified will be prevented from -- precluded from entering the

courtroom. There's some people in the courtroom I just don't

recognize, and I want to make sure there's no misunderstanding

that causes trouble down the road.

THE COURT: Yes. Let's please be diligent about

looking at who's in the courtroom and make sure none of the

testifying witnesses are present.

By the way, do I have a copy of your finalized

PowerPoint? Please make sure that I have one by the end of

today. Thank you.

(Recess taken, 1:35 p.m. to 2:08 p.m.)

THE COURT: All right. Please be seated. The record

will reflect the presence of government counsel, presence of

the defendants and counsel, and let's have the jury in.

(Jury present.)

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THE COURT: Oh, my goodness. Are you okay?

JURY MEMBER: Yeah, I'm good.

THE COURT: All right. Please be seated.

I just want to double-check to make sure. I didn't

realize how far -- how far down that bar comes. You feel okay?

You didn't get a --

JURY MEMBER: Yeah.

THE COURT: Okay. Thank you.

Okay. All right. The government may proceed with its

opening statement.

MR. STONE: Thank you, Your Honor.

Ladies and gentlemen, prostitution is illegal. It's

illegal in 49 states and most of Nevada.

And for nearly a decade, these five defendants owned

and operated the number one prostitution advertising website in

the country. And that wasn't a mistake. They worked to

achieve that ranking.

The evidence at trial will show how defendants used

three different strategies to market and promote prostitution,

in building up their business to become the number one website

in the country for prostitution advertisements.

After Backpage achieved that position, when they were

at the top, they had different strategies, three different

strategies for maintaining their position and for continuing to

allow the money to flow in.

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These strategies made Backpage what it was: a very

profitable website for the posting and viewing of prostitution

ads. How profitable? In the last five years in existence,

this was their revenue, from 2013 through 2017. Over a hundred

million dollars each year, and upwards of 135 in certain years.

How did the website earn its money? Well, the

evidence is going to show that they earned it through their

Adult category, the Adult section that was on their website.

94 percent or more of their revenue was from that Adult

section, and the evidence is going to show that the Adult

section was for prostitution ads.

Going to show you what their website looked like in a

minute, but it was a classified advertising website. You could

search and look for cars or jobs or other things. But the

evidence is going to show they didn't make any money on those

sections. They made money on one section, Adult; specifically,

prostitution.

There's a snapshot that you're going to see in

evidence of one month in 2011 and the revenue that they earned

in that month. $5 million, nearly, from the Adult section. It

was about four grand for Automotive. This was a website that

made its money one way, and that was the Adult section, which

meant prostitution.

The charges for these five defendants, they're all

charged with promoting prostitution, promoting the prostitution

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offenses of third parties, of prostitutes and pimps who used

their website to post the advertisements to further their

business.

There's five defendants here, and they're all charged

with those counts. There's a conspiracy count, and then

there's 50 additional counts, 50 charges. At the end of the

trial, you will be asked to deliberate on whether or not these

five individual defendants are guilty or not guilty of

promoting prostitution.

Three of the defendants are also charged with money

laundering offenses, money laundering meaning when they get the

proceeds from the promotions of -- from the promoting

prostitution, what they did with it. And we'll talk more about

that.

A quick note on the term "prostitute" and

"prostitution." I've already used it a number of times this

afternoon, and those will be words that will be used often here

at trial. Of course there are other words that mean the same

thing, and there might be other words that you would prefer to

use: Hooker, lady of the night, the oldest profession in the

world. We're going to use "prostitute" and "prostitution"

because those are the words that are used in the law, in the

law that they've been charged with here.

In addition, you just went through two and a half days

of jury selection. There were lots of questions about graphic

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material, photos, language that you will see during trial that

discusses sexual conduct. And when the trial is about the

individuals who ran the number one prostitution advertising

website in the country for the better part of ten years, that's

going to be the evidence. So that's what will be shown here at

trial.

Now, let's talk about how the website looked. Now, if

you've ever been on craigslist, this may look familiar. If you

went to Backpage.com, this is what you would see. This is from

the Phoenix version or the Phoenix Backpage.

And Backpage was created in 2004 here in Phoenix, and

it existed for 14 years. It was shut down by the federal

government in April of 2018.

It was created in 2004 to be a competitor to

craigslist. And we'll talk a little bit about craigslist and

the relationship between craigslist and Backpage, because it's

important to the story.

But here I want to focus on the Adult section that I

mentioned earlier. This is the section where Backpage earned

its money. This is the section where the defendants earned

their money through their work at Backpage.

And the number one category within the Adult section

is the Escort category. That's the first one listed here.

Now, there's going to be evidence that talks about

escorts and what an escort is and the fact that it -- there is

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such thing as a legal escort, someone who is paid for

companionship. You think of going to your high school reunion.

You don't have a date, so you pay someone to be your date. No

sex is involved. That's an escort. All right? That's legal.

But what the evidence is going to show in this case is

that when the term "escort" was used on Backpage, that's not

what it meant. It meant something else. It meant

prostitution.

When you have a website that makes its money from

prostitution ads, it becomes difficult if every ad is obviously

about prostitution. $150 for sex. Hundred dollars for a blow

job. That would be difficult to exist for any period of time.

So what defendants did, we'll talk about this in

further detail, is they used coded terms. The biggest coded

term of all was "escort." Because when "escort" was used on

Backpage, it meant prostitution.

But this trial will have evidence about lots of coded

terms, coded terms that didn't change the underlying reason for

the advertisement. The advertisement was for prostitution.

All right. So that's how the web page looked. Now,

if you clicked on that Escort link, you would be taken to view

some ads. And I'm going to show you right now one of the ads

that was posted in 2016 and is one of the charged counts in

this case.

This is Count 31. So this is one of the ads that was

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posted on the defendants' website, Backpage.com.

Zoom in on -- this is the same ad. I just have cut

parts of it. The title of this ad is: Sometimes it's all

about the journey and the destination. Erectile dysfunctional

GFE provider.

The evidence is going to show "GFE" is one of those

coded terms. "GFE" means Girlfriend Experience. And there

will be testimony that Girlfriend Experience means sex, and in

addition to sex for money, it means that the prostitute would

do things that a girlfriend might do: open-mouth kissing, or

closed-mouth kissing. So that's another coded term.

There's a picture that was posted on this ad. Risque.

And then some language: I don't care for reviews, but they

insist on leaving them anyway. You can find a few current

reviews at T3R, and then a number.

Now, the evidence is going to show that "T3R" actually

stands for "TER," which is short for The Erotic Review. And

The Erotic Review, which is a big part of the defendants'

strategies in promoting these prostitution offenses of others

and building their website, that was a review site for people

to leave reviews about prostitutes, about what services they

did, about how they enjoyed their services.

You'll see that The Erotic Review described itself as

the Consumer Reports for escorts. Again, important to see that

language, the Consumer Report for escorts. The Erotic Review,

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just like Backpage, when they say escorts, they mean

prostitution.

Here's another ad. This is Count 34. The title of

this ad: I love men. I'm a GFE. Outcall and incall, with

exception on the incall.

Again, there's that coded word, GFE. You'll also hear

evidence that outcall and incall, also coded terms that mean

prostitution.

Some of the language that was used in this ad: I

really love what I do. I'm a GFE. Tall, busty, small waist,

big ass. Caucasian, brunette, great smile, and rocking bod.

36 Double D 26-39.

This is one of the ads that the defendants are charged

with.

Evidence is going to show that this coded term "GFE"

was a known coded prostitution term. These defendants knew

about it. They knew it meant prostitution. There's emails

about it.

And then the ad gets published, promoting prostitution

offenses of others, and it helped Backpage become and maintain

as the number one website in the country for prostitution

advertising.

All right. Those are two ads. There's going to be 48

others that are charged. There will be other ads that you will

see as part of the conspiracy that is charged against these

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defendants.

Now, I want to talk about how this company progressed

over the years. Really was two different phases. Phase one

was when it first started out in 2004, trying to get off the

ground, trying to build a business. That lasted until about

2010.

And from 2010 to 2018, they were attempting to

maintain their status as the number one website for

prostitution advertising.

All right. So here are the marketing strategies that

I referred to earlier. This is in the first phase of the

company, when it started in 2004 until September 2010.

What happened in September 2010? That's when

craigslist, their number one competitor, made the decision to

remove adult ads and content from their website. That happened

in September of 2010, and whoosh, overnight an avalanche of ads

went from craigslist to Backpage.

And all these strategies to build up their business,

they didn't really need them anymore. Because they were there.

They had all the business they could handle.

So let's talk about the first part -- or let me just

give you a brief introduction to these marketing strategies and

these three.

Aggregation. Aggregation just meant going to other

websites and taking prostitution ads and bringing them to

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Backpage. Try to flip customers to Backpage. Importantly,

though, they really focused on these escort ads.

Super posters were relationships that the defendants

and Backpage had with some of their best customers. Just

happened that their best customers were in the prostitution

business, posting thousands of ads a month, and the deals that

were given to some of these super posters. That's the second

strategy that these defendants had.

And the third one is what we talked about, The Erotic

Review and the reciprocal link program and how Backpage and The

Erotic Review worked together to drive traffic to their

websites and to improve Backpage's business. This was the

number one strategy for Backpage, as the evidence will show.

Here's phase two. Craigslist removes the adult

content in September of 2010. All the ads move over to

Backpage. And now there's three new strategies. These

strategies that the defendants had weren't about building the

business, it was about how do we keep this business. How do we

keep the money following in.

And the first one, moderation. Probably the most

important strategy for the defendants. Moderation can mean a

lot of things, and it can mean different things to different

websites. Importantly, the evidence is going to show that what

it means in this case, what it meant for Backpage, was to make

the prostitution ads look less like prostitution ads. Wasn't

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about removing the prostitution. Let's just make the website

look a little better. We'll talk about that.

When Backpage became the number one website in the

country, there were lots of folks who scrutinized them, who

asked questions, who wrote letters, had meetings, to inform the

defendants about what their website was being used for. Of

course, the evidence is going to show the defendants already

knew, and the strategy here is what the defendants' response

was to all of this pressure from outside sources. And there

will be evidence on that strategy.

And then finally, something that the defendants called

credit card Armageddon. In 2015, credit card companies stopped

their customers from using the credit cards to buy ads on

Backpage. It became a challenge for Backpage to continue to

earn money, and so they became creative and they did a number

of different things to maintain that revenue, as you saw in the

earlier slide. Didn't drop off much after 2015. Maybe a

little bit, but they still were making over a hundred million a

year.

All right. Before we discuss those strategies

further, let's talk about the defendants. There's five of them

here.

The first one is Michael Lacey. He's sitting right

here, second in on the back, back row. He was one of the two

principal owners for Backpage. As the principal owner, there's

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two things to know about him. One, he earned the most money

from Backpage because he was one of the two principal owners.

He owned about 45 percent of the company.

And as the principal owner, he was ultimately in

charge of the website's policy and strategy. He also had a

primary role in the second strategy listed here, in responding

to this bad press, to the meetings that the defendants had with

organizations, to this heightened scrutiny.

There will be evidence about Defendant Lacey and what

he did at that juncture. Here are his earnings from Backpage

in 2013 and 2014.

There's another principal owner, James Larkin, but

he's not a defendant. But you will hear some evidence that

mentions his name, and he's the second principal owner.

The next defendant is Scott Spear. He's sitting in

the first row with the red tie, second in from the end. He

served as an executive vice president for Backpage's parent

companies and also had an ownership stake in Backpage. It was

much smaller, around 4 percent or so.

And he played a large role in the first phase of

Backpage, when they were building the company with aggregation,

with those -- the super posters and with The Erotic Review. He

was more involved in that buildup. Here were his earnings in

2013 and 2014.

The next defendant who is also an owner is Defendant

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Brunst, and he's second from the end in the back row.

Mr. Brunst with the chief financial officer of

Backpage and several of Backpage's parent companies. And he

knew about Backpage's strategies or the defendant's strategies

in the first phase. But he was critical. He was a key cog,

key player in this response to credit card Armageddon and the

creative methods that Backpage and these defendants engaged in

to attempt to keep the money flowing in. We'll talk about his

role.

Those are his earnings from 2013 and 2014.

The other two defendants were not owners. They were

managers. Defendant Padilla, second in on the front row; and

Defendant Vaught, who is right in the middle of the back row.

Now, their role with Backpage was to run moderation.

Remember, moderation was the first strategy on the second

phase. And what did moderation mean at Backpage? Well, it

meant to make the prostitution ads look less like prostitution

ads.

There's two other individuals you're going to hear

from at trial. One of them is named Carl Ferrer. He was a

cofounder of Backpage and he was the CEO for a large part of

Backpage's existence. He's going to testify, and you'll hear

from him about Backpage's growth, about these marketing

strategies in building the business, and about how they

attempted and were successful in maintaining that business for

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a number of years after September of 2010.

He's already pled guilty. He's pled guilty to

conspiring to promote the prostitution offenses of others and

of money laundering.

The other individual you'll hear from is Dan Hyer.

Dan Hyer was the sales and marketing director for Backpage, and

he was in charge of aggregation. Aggregation, is in phase one,

was the first marketing strategy that the defendants

implemented. And he's going to tell you all about it and how

successful the aggregation efforts were in building the

business.

You're going hear from other employees as well.

You'll hear from moderators who worked under Defendants Padilla

and Vaught. But two of the primary employees you'll hear from

are Carl Ferrer and Dan Hyer.

All right. Let's go back to the first phase of the

company. And when they were setting out to build the business,

they made some decisions. They made the decision to focus on

escort ads. They did it for a couple of reasons. One, the

escort ads in the Adult section were always something that they

charged for. Some of the ads that you could post on Backpage,

they were free. But the escort ads, for the most part, up

until the end, you needed to pay for it just to get it on the

website. It could be it was from a dollar upwards of 12, 15,

17 dollars at times.

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They also decided to focus on the escort ads because

of the photos. You've seen some of those photos. They thought

that would draw attention to the website and help build the

business.

So I'm going to show you, if you went on Backpage --

this is from 2015. If you went on Backpage and searched in the

Escort section, these would be the ads that you would see.

This is Sacramento Backpage section, and this is in

March of 2015.

So this was the idea way back when Backpage was

starting, that photos like this would draw attention and help

build the business. Can read some of the titles of these ads.

Magical lips. Nice booty. Cute face. The right choice

guaranteed. Sweet and sexy housewife for wild times. $60,

$100, $180, hot Friday special, sweet and sexy. Thirsty, come

drink my water. It's play time, fellas. Help curb my oral

fixation.

Evidence at trial is going to show that the term

"escort" on Backpage meant prostitute, meant prostitution.

So aggregation. Here's how it looked. User posts an

ad to craigslist. Again, this is the early days of the

business. This is phase one, 2004-2010.

Backpage employee copies ad content on to Backpage.

Email the user. Here's a link to a Backpage ad. Then user

clicks acceptance, and now they have a Backpage ad.

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So this was how aggregation worked. And it was a

strategy that Defendant Spear was heavily involved with.

You're going to see emails where they're talking about what

script to use, that the employee should use when they're

calling these escorts, these prostitutes, to get these ads from

craigslist to Backpage.

Second, I mentioned this before, is super posters. It

meant giving great big discounts to some of their best

customers. Just so happened that these best customers posted

thousands of ads a month on Backpage, and those were

prostitution ads. Their best customers, who were labeled as

super posters, were in the prostitution business. So give them

a discount, and they're going to keep posting ads on Backpage.

That was another one of their strategies.

All right. The Erotic Review. The Erotic Review

described itself Consumer Reports of the escort industry, or

Yelp. It's where you went if you were interested in buying a

prostitute to review what services the prostitute did and how

other users -- we call those johns. Somebody who buys a

prostitute and has sex with a prostitute, that's a john.

So what did the johns think of the prostitution -- or

of the prostitute services. That's what the The Erotic Review

was. It eliminates any doubt as to what these services were

for.

In 2007, the defendants created a relationship with

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The Erotic Review called "reciprocal link." Here's how it

worked. There would be a link on Backpage that you could click

that would take you to The Erotic Review.

So someone could be on Backpage looking at these

prostitution ads and think, I wonder what other johns thought

of this prostitute. Hit the link, takes you right to The

Erotic Review, where you could see it.

Similarly, if you were on the The Erotic Review

looking at what other people thought of certain prostitutes,

there's a link here that you could click and see if that

prostitute was available. You could purchase that prostitute.

That's -- you scratch my back, I'll scratch yours.

Now, that relationship lasted from 2007 to 2010,

evidence is going to show. Why did it end in 2010? They

didn't need it anymore. Because of craigslist stopping their

adult content, all the ads had already moved to Backpage.

But the ads that posted after 2010 often had

information in the ad about TER, giving a number that would

allow someone who was interested in buying the prostitute's

services to go to The Erotic Review. Now you can't just press

a link. Okay, after 2010 you couldn't just press a link, but

you could go and search yourself and find that prostitute and

see what services were offered.

So here's an example. All right. This is Count 49.

This is an ad from a count that is charged in this case. Best

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GFE ever. You see in the middle there's a reference to TER.

And that's what I'm talking about.

So if you went to TER, if you went to The Erotic

Review, here's what you would find. Here's this prostitute's

review on The Erotic Review. Incall, outcall. Remember,

talked about those. Those are coded terms for prostitution.

Service, escort. Well, is it a legal escort? Is it for

companionship? Let's look at the services offered. No. It's

for sex. It's for blow jobs. It's for other things.

But this relationship was critical for defendants in

building up their website during phase one.

Here's another charged count. This is Count 35. This

was posted Tuesday, December 20th, 2016. And you see in that

box another reference to GFE. 30 minutes, $180; one hour,

$200; 90 minutes, $300; two hours $400.

And the evidence is going to show that this prostitute

also was reviewed on The Erotic Review. When the term "escort"

was used on Backpage, it meant prostitute.

The Erotic Review was something that was known.

There's an email to Scott Spear in July of 2007. Subject: The

Erotic Review. We get 2 million page views, 150,000 visits

from The Erotic Review per month. They bring in more referrals

than the Village Voice.

It was important enough for the defendants to put it

in their 2008 budget and business plan for Backpage.com.

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There's going to be evidence at trial that shows this.

In terms of marketing, we struck a deal with The

Erotic Review with reciprocal links. It created huge brand

awareness in this niche industry and increased page views from

TER by 120,000 per day.

There's going to be evidence that defendants received

what's known as Google Analytics reports, where it's just a

report that shows, hey, where are we getting our traffic on our

website? How are we getting business?

The number one referral website for the majority of

the time that Backpage was in existence was The Erotic Review.

You'll see an exhibit where it shows that The Erotic Review

provided six times more referrals than Google to Backpage.

All right. So back to September 2010 and phase one

becomes phase two, because Backpage no longer needs their

prostitution marketing strategies to build up the company. Now

they have all the business they could possibly want because

craigslist shut down their Adult section.

So we move to maintaining. And we start with

moderation, moderation that was run by Defendants Padilla and

Vaught. And again, what moderation meant to Backpage, the

evidence is going to show, was to make the prostitution ads

look less like prostitution ads.

How did they do that? Or why? Why would they do

that? Well, if you make the ads look less like prostitution

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ads, could have some deniability as to what those ads actually

were for. It would look better when people are searching the

website, law enforcement or elected officials or others.

Website looks better.

And, importantly, if you continue to allow the

moneymaker, the prostitution ads to post, the money's going to

keep flowing in.

So the way that they moderated, and this was all

starting after this avalanche of ads in 2010, was largely in

two different ways. Now, their moderation policies changed,

okay. The evidence is going to show they were all over the map

on which words should be banned or stripped out and how they

should do it.

But the underlying objective for the policy never

changed: to make the prostitution ads look less like

prostitution ads.

All right. So here you see sanitizing ads, cleaning

up the ads. Strip out from ad was one feature and ban was

another feature.

Strip out meant, okay, if there's a term that we, the

defendants, believe should not be on our website, let's just

remove that term and then the ad's going post. All right.

Blow job. Or another word that might mean blow job, if it was

on the list to be stripped out, okay, it's stripped out and

then the ad posts. It's still a prostitution ad, but now it

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doesn't have that word. Now it looks a little less like a

prostitution ad. That was moderation.

The second was ban. And when they banned a term, the

ad would not post. Instead, the user would get an error

message. Using the example of blow job again, if that was on

the banned list, the user who was trying to post the ad would

get an error. Hey, blow job isn't allowed on Backpage. They

could try to post the ad again with a different word, and if it

wasn't on the banned list, it would post.

That's how moderation worked. There's going to be

evidence, for example, in January 2011, they had terms BJ,

BBBJ -- evidence will show that means Bareback Blow Job -- blow

pop, and blow pop with a space. Okay? Evidence is going to

show those are four different ways to say oral sex.

And for two of them, they were banned. So the user

would get that banned message and they would need to find

another word to describe that service. And then two of them

would just be stripped out and the ad would post.

So not super consistent, but that's not really

important. The important was why were they operating with this

policy? What was the point of moderation?

And you'll find that it was to make the prostitution

ads look less like prostitution ads.

And Defendants Padilla and Vaught have a number of

emails that you will see at trial directing moderators under

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them on what to do. Changing the policy. Saying some words

that were permissible now aren't. Some words that aren't now

are.

But again, the critical thing to keep in mind would be

what was the point? What was the point of moderation?

For example, there's three terms here, GFE.

Girlfriend Experience. We talked about that. Cum,

self-explanatory. PSE, porn star experience. Also a

prostitution term.

Over the course of the second phase, the defendants

treated these words differently at different times. In 2010,

there's an email, Defendants Padilla and Vaught are on that

email, that says no coded terms for prostitution and included

the terms GFE and PSE.

And then in 2016, the evidence is going to show,

Defendants Padilla and Vaught explaining to the moderators,

hey, we don't moderate GFE. That's not a word we're taking

out. And you're going to see 25 of the counts have that coded

prostitution term, GFE. 25 of the hundred counts that you'll

be deciding whether or not the defendants are guilty or not

guilty.

There will be an email from Defendant Vaught where

she's sending it to the moderators in -- who she supervised and

asks for them not to use the phrase "promoting sex." Rather,

they should say "adult ad." There's a big difference. To

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them, there was a big difference in the coded terms. One seems

more obviously like a prostitution ad and one was a cleaner way

to say the same thing.

Email from Defendant Padilla where they're just

talking about whether or not they should add a term to the

moderation list, and the term is "lactating." He says that

term's a little trickier. Why? Because it implies some

exchange of bodily fluids, which kills our companionship

argument.

What's the companionship argument? It's what a legal

escort ad is. Paying for companionship. But you're not going

to see any companionship ranked on TER. I don't think you're

going to see any ads in this trial where that's what's being

advertised.

All right. The second strategy, response to bad

press, nongovernmental organizations, and law enforcement.

Now, bad press. This, again, in the second phase.

CNN, New York Times, the Wall Street Journal. CNN ran --

Anderson Cooper had a couple shows about Backpage. New York

Times had a number of editorials. Same with the Wall Street

Journal. They all had the same thing in common in that they

were discussing how Backpage was used for prostitution.

Did defendants shut down the Adult section after

receiving this bad press? No, they didn't. They had a

strategy for how they responded to it, though. Similar.

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There were these nongovernmental organizations who

were concerned about how Backpage was being used, and they met

with defendants. You're going to hear testimony from the

people who met with the defendants during this second phase.

National Center for Missing and Exploited Children,

Polaris Project, Auburn Theological Seminary all had meetings

with some of the defendants. Did those meetings cause them to

change the way Backpage was being operated? No.

You're going to hear that their response to bad press

and meetings was -- involved a couple things. One, they never

disclosed their strategies that they used to build up the

business. They didn't tell anyone that they had a relationship

with The Erotic Review, this reciprocal link. That wasn't

something that they were offering.

And they attempted to deflect the blame to others.

Look at all the other bad stuff that's happening on the

internet.

There's actually an internal phrase that they used

that was called "the slow dance." The slow dance with these

nongovernmental organizations, you'll see with the attorneys

general who sent letters, and that was give them just enough

but let's make sure that we don't cut into our bottom line.

Let's not cut into our business. What's the business?

Prostitution ads.

Again, this is when Defendant Lacey was heavily

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involved in the response to all of the bad press and meetings

with these organizations. And he wrote an editorial. He had a

draft editorial where he not only justifies Backpage but is

proud of it, of Backpage's position. He writes: For the very

first time, the oldest profession in the world has

transparency, recordkeeping, and safeguards.

Of course, he was incentivized to justify Backpage's

existence.

These defendants also received letters from the

National Association of Attorneys General. They received a

number of those letters. And one of their responses was, look

at our moderation program. Look at how we're reducing

prostitution on our website.

The evidence is going to show that that's not what

moderation was doing.

You also will hear evidence about subpoenas and

subpoena responses by the defendants and by Backpage.

Subpoenas are what law enforcement -- a court order that law

enforcement uses to get information, to get evidence to help

them in investigating cases. And when you're the number one

website in the country for prostitution ads, you're going to

get a lot of subpoenas. And if you don't respond to a

subpoena, problems with the court. You could be -- there could

be some consequences.

But Backpage, they responded. And law enforcement

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would say, thank you for that response because now we were able

to prosecute a pimp or some prostitution enterprise.

But what defendants weren't telling law enforcement

was all these strategies that we just talked about and the fact

that moderation was actually removing some of the content,

making the ads look a little bit less like prostitution ads,

making law enforcement's job more difficult at times.

And again, this was part of the slow dance. Let's

engage with these people who are critical of our website, but

let's not do too much to mess up our bottom line.

Here's the last strategy, and that's the response to

credit card Armageddon. And that occurred here in 2015.

MasterCard, Visa, American Express decided, we're not going to

allow our customers to use these credit cards anymore to pay

for Backpage ads.

So what did they do? They had to get creative. They

turned to money orders; cryptocurrency, which now I think

people are familiar with, but in 2015, a little bit of a

different story; and even gift cards. They tried to -- if you

had a Target gift card for a hundred bucks, let's see if we can

use that to pay for the ads on Backpage.

They created new companies that attempted to fool the

credit card companies. And this is when Defendant Brunst was

heavily involved. It involved dealing with lots of different

banks, creating new entities, all with the bottom line or the

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objective of trying to continue to get paid, even when it

became fairly difficult.

So here's how it would work. Pimp or prostitute

bought ads on Backpage. Paid with money orders. Couldn't

write "Backpage" because the banks wouldn't do business with

Backpage because of the content on that website. Money orders

deposited into shell company bank accounts, and money moved to

other Backpage shell companies.

There will be a couple of emails -- well, there will

be a number of emails, but I'm going to highlight two from

Mr. Brunst. One when they were looking at trying to find

alternative banking, he talks about, hey, didn't we look at

banks in Mauritius? Mauritius is a different country. Didn't

we look at it before and they turned us down because of our

content? Can we find a bank that will take our transactions?

Then there's another email where it's talking about

Website Technologies. Website Technologies is a company that

the defendants created just to receive Backpage funds. And

Mr. Brunst is very concerned about the fact that people might

figure out that Website Technologies was related to Backpage.

He says: We need to think this through, think through

our strategy, or all the work to separate it from Backpage will

be lost.

This was part of the strategies that defendants used

to maintain their business. And this will relate to some of

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the money laundering charges that have been alleged, how they

moved the proceeds from the promotion of business enterprises

to different businesses.

All right. So here are the charges. We break down

the 50 counts and the one conspiracy count for prostitution

promotion this way.

25 ads with the coded prostitution term "GFE" that we

have discussed. 10 ads for a prostitute with the initials PR

that engaged with Backpage and with some of the defendants.

And then 15 other ads for prostitutes, some of whom you'll hear

from at trial. You may hear from law enforcement about some of

these prostitution business enterprises as well.

Evidence is going to show that these defendants'

policies, procedures, and management of Backpage led to these

50 ads, these 50 ads that were advertising for prostitution.

Here's the money laundering counts. 49 counts here,

and it's, how did they use the money? They used some of it to

conceal their criminal activity. They used some of it to

promote. And some of the money was transferred to other shell

companies and then spent by the defendants.

Just want to highlight one -- actually two counts,

Counts 99 and 100, that are alleged against Defendant Lacey.

There's going to be testimony that he moved

$16.5 million from Phoenix, from Arizona, to Hungary, the

country, and he moved it in an attempt to place some of his

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assets where litigious parties, including government parties,

could not access his accounts. How did that look?

Ladies and gentlemen, prostitution is illegal. These

five defendants built and maintained the number one website in

the country for the better part of a decade for prostitution

ads. That was no accident.

The evidence is going to show that these defendants

knew that their website earned money through prostitution ads

and helped promote and further that business through all the

strategies that we just outlined.

What was the business? Prostitution ads.

These defendants promoted prostitution when they built

up the website, then they maintained the prostitution ads

through 2018. And they did that in part through moderation, to

make the prostitution ads look less like prostitution ads, and

keep the money flowing.

At the end of the trial, ladies and gentlemen, we're

going to stand before you and ask you to find that these

defendants are guilty of these 100 counts.

Thank you.

THE COURT: Thank you, Mr. Stone.

Who is going to proceed first for defendants? Come

forward and proceed. Mr. Cambria.

MR. CAMBRIA: Good afternoon. May it please the

Court, all counsel, ladies and gentlemen of the jury.

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Mr. Stone has already introduced my client, Michael

Lacey. Michael.

As you were told in the preliminary instructions, what

we say is not evidence. What happens on the witness stand is

evidence and the exhibits that you may get would be evidence.

And, of course, Mr. Stone, nothing personally, but let

me start where he ended. You recall he talked about

concealment money laundering, and he had a little picture up

there where it showed money, $16 million going out of the

country.

And don't be misled by that. What he didn't tell you

is, in order for that to be a crime, there has to be

concealment of money, the owner, the details. What he left out

was that my client, through an accountant and an attorney, in

writing, told the IRS exactly where that money was, exactly how

much it was, and exactly that it was in the names of a trust

for his two sons.

He didn't tell you that. And you will hear, and the

evidence will show, that there was no concealment. Once you

send a writing to the IRS with all the details in it, there's

no concealment. And that's what's necessary to have that

offense be proven beyond a reasonable doubt.

So I start there simply to indicate, wait till you

hear everything in this case before you make a decision. At

the end of the case, Her Honor will tell you what the law is.

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We don't tell you what the law is. We tell you what we think

the proof will be.

So let me start here. Mr. Lacey is an old-time

newspaper guy. That's how he was born and raised, as a

newspaper guy. He, along with Mr. Larkin, who you know is

deceased, started when they were students at Arizona State.

They started with basically kind of a newspaper, and eventually

they created the New Times. Some of you may be familiar with

it. I know we had some of the potential jurors indicate they

were familiar with it.

And it basically was a free paper. Eventually they

got up to 19 different papers around the country. And they

were able to make this a free paper by selling advertisements.

And they were -- those advertisements were found on the back

page, if you will.

THE COURT: Mr. Cambria, can you use the microphone.

MR. CAMBRIA: Oh, I'm very sorry.

THE COURT: Court reporter cannot hear. Thank you.

MR. CAMBRIA: Very sorry.

And so that's how the name "Backpage" came to be,

because that's where the ads were in the beginning.

Mr. Larkin and Mr. Lacey were old-time free speech

advocates, First Amendment guys. And this case has a very

significant First Amendment part to it, which Her Honor will

explain at the end of this case in the instructions.

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So what happened is, they had these 19 papers. And by

the way, when they put up numbers of, you know, they made

millions of dollars and so on, last I looked, it's not a crime

to make money in the United States. And so, yes, they had all

these newspapers and they generated a lot of income. There's

no doubt about it.

But there came a point in time when a person who

worked for them at the time, Mr. Ferrer, said -- you know, he

was an ad person. And he said, we need to keep up with the

times. The internet has taken over, and so we have to be part

of that.

And so he came up with the idea of Backpage and

basically allowing people to create their own ads and do --

post them on a platform. And Backpage was owned by a larger

company, if you will, and that's how Mr. Lacey became involved

in the ownership. He owned part of a larger company, which

owned, eventually, Backpage with a number of other people.

And so what happened is, Mr. Ferrer turned out to be

the individual who created Backpage. He created not only the

idea of Backpage, but he created the rules and regulations,

their procedures, and how it was going to be operated.

He was the chief executive officer of that. Mr. Lacey

had no specific role in running anything to do, day to day,

with Backpage. He was still overseeing the other writers from

all the numbers of newspapers that they had. That was his

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thing. His thing is writing articles, being a newspaper man.

So in any event, what happened is, they create

Backpage. And what happens? People can post their own ads.

They buy ad space, and that's all they do. They buy ad space.

If they do something wrong as a result of that ad,

that wouldn't be something that would be participated in by

Mr. Lacey or the others.

So what happened here? They create Backpage. They

sell ads. People buy ads. And the proof will show that there

are all these people who are going to try to take advantage of

something that's a legal thing but they may try to use it for

an illegal process.

And what do we know and what will the proof show that

some of these others are? Telephones. Telephones are legal.

And the evidence will show people use telephones to commit

crimes. We don't prosecute the phone company. We prosecute

the people who misuse the phone.

The mail. People use the mail to commit crimes. We

don't shut down the mail. We go after the people who commit

the crimes.

FedEx. Same thing. People use it to commit crimes.

We see it all the time.

So basically Backpage was -- was faced with two

decisions. One, there are going to be some abusers. There are

always abusers for things that are legal, like the mail and so

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on. Do we shut that down or do we go after the individuals who

are the ones who are committing the offenses?

So what happened with Backpage was that they decided

that they would work with the authorities for the purpose of

rooting out, if you will, those who misused Backpage for

illegal reasons.

Now, we've had a number of things here that you were

told today about, you know, people use certain words and they

put them in their advertisements, and you're supposed to be

able to look at that and say, aha, that's got to be a crime.

Well, I believe the proof will show you that police

officers will come in here and tell you that they cannot make

arrests just based on an advertisement because you do not know

what the end result is going to be unless you respond to the ad

and then see.

Let me give you an example. So somebody would

advertise themselves as a massage therapist. Now, first of

all, escorting is legal. They want to make it synonymous with

prostitution, but there's a difference. And, in fact, it's

licensed. It's licensed in Arizona. It's licensed in a number

of states. And there are rules and regulations and so on.

So let's assume somebody I -- advertises massage.

Now, today you heard, oh, incall, outcall, that means it's

illegal. Well, the proof will show you incall means you go to

them. Outcall means they come to you. That's what that means.

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Doesn't mean anything about prostitution.

But in any event, so you see an ad and it talks about

massage. And I believe that police officers are going to come

in here and testify, are going to tell you that just based on

that ad, even if they had scantily clad picture or they gave

you the illusion that they were going to do something that, you

know, would be sexual and illegal for money, you can't know

unless you respond to the ad and in fact a proposition is made.

So the importance of that, and the reason I say it, is

because if the police come and testify, and I believe they

will, that you -- we never made an arrest based on an ad unless

the ad clearly said sex for money.

Sex for money is illegal. We all agree about that.

Having a conversation with someone where no money is involved

and they engage in sex is not illegal. Paying somebody, for

example, to come over and, you know, be a French maid and be

nude, clean your house, that's not a crime. Being a situation

where you pay someone to come over and do a striptease, that's

not a crime.

There are a lot of adult things that can be done that

are not criminal. People could meet in websites, they do it

all the time, and immediately have sex. It's not a crime. If

they paid for it, it would be something different.

But so the proof will show that not everything that's

adult is automatically a crime.

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So you have a choice. There are platforms. They sell

advertisement. If somebody advertises something and on its

face it doesn't say sex for money -- and like I say, police

will tell you they don't make arrests based on that. They

can't.

But if somebody then goes to that place and engages

with that person and they do sex for money, the platform isn't

responsible for that, unless it was clear on the face of the ad

that it was definitely a crime. That would be one thing. But

if it's a situation where, you know, people may make themselves

look like they're going to do something or whatever, you

wouldn't know until you got there.

Now, they're talking about coded words and some other

things. Well, the proof will show that by taking various words

out -- and again, Carl Ferrer and others are the ones who had

lists of words that they would take out of ads. And the reason

for that is because they were -- if they suspected that those

words were to be used by someone looking to advertise for a

crime. Let me give you an example.

Let's assume there was a gun ad and it said, you know,

for sale, 16-gauge shotgun, 12-gauge shotgun, machine gun. All

right. Well, machine gun is illegal.

So if you had that ad, you would be -- you would be

advertising something that's illegal. And if I was a person

out there wanting to commit a crime to buy a machine gun, I

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would see that. I would respond to it. I would buy the

machine gun if I could. I'd commit a crime.

So if you took out the word "machine gun," now I'm

somebody looking for that. I don't see it. It's not there.

So what happened here when the people would moderate,

so to speak, they would take words out of ads that they felt

might be a word that somebody looking to commit a crime would

respond to. So by taking the word out, they prevented the

criminal transaction. They didn't facilitate it. They took

out the word that would cause the person who was looking for

some kind of criminal activity to react and call that ad. They

took those out.

So -- and I've heard it somewhere along the line where

somebody would say, well, all right, how about if there was

this, you know, a GFE. And they say, well, that means

Girlfriend Experience, and that automatically means sex for

money.

Well, whether it does or not depends on, when you

respond to the ad, if a crime is going to be offered at that

point.

But there was a time when -- and again, what would

happen is these advertisers are clever. You know, they use

words, and as soon as you start taking those words out, they'll

use other words. And they'll try to do it that way. Then you

take those words out. And it's a progressive thing.

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And remember, you know, 20 years ago when the internet

began, everything was brand new. When they started the

Backpage, things were brand new. They were learning.

So the idea is, if you take words out, you are not

promoting a criminal activity, you are fighting against a

criminal activity by doing that.

So what did Mike Lacey believe? Well, Mike Lacey did

not do -- a little water.

Mike Lacey was not involved in the day-to-day

operation of Backpage. He had to rely on what Carl Ferrer told

him and others. What did he know? He knew that Carl had hired

a bunch of lawyers to advise them. He knew that Carl had made

statements about how they ran the website and how they ran it

legally.

Carl stated many times under oath in written

depositions or written statements that he had submitted in

connection with various affairs that there were no prostitution

ads on the website. Carl said this under oath time after time.

Michael saw those. Michael was apprised of what those

statements were being made by the person who was running

craigslist -- craigslist -- Backpage.

And so he could rely on that in good faith to believe

that the Backpage was being run correctly and legally. But

there was more than that. There was so much more than that.

Now, you know, there was a -- I think the desire to

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create a feeling that Backpage was like paying lip service to

the authorities.

Backpage decided that, look, the internet is not going

away. So you got two things to do. In 2018, they told you,

they came in and they shut down Backpage. Now, what happened

as a result of that?

There were millions of people who were advertising,

and they were advertising legally for many things other than

adult things. Cars, guns, you name it, apartments, et cetera.

Every one of those people lost the ability to do that

because the government came in, with no conviction by a judge,

no conviction by a jury, and no conviction by anything or

anybody, but they shut it down. And all the millions of

people -- and by the way, they do about 6 million ads a month.

All the millions of people who never abused Backpage were

silenced. That's what the proof will show.

And so people who abused Backpage were the people that

the Backpage operators focused on. Mike Lacey was told by Carl

Ferrer, we are doing everything possible to assist the police

to keep bad -- the bad actors, if you will, off of Backpage.

And then he also shared with Mike Lacey and the others some of

the feedback from these police officers.

And, you know, there's kind of an indication here that

all the police agencies got fooled, and really Backpage wasn't

helping the police. Well, that's nonsense.

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And some of the things that you're going to hear are

what the police agencies had to say. And here's what I

believe, and I'll just give you a sample of the feedback. And

this is feedback that Mike knew about. This is from the Denver

Police Department.

I wanted to personally thank you again for all you've

done to assist in this matter. I know your company is vilified

nationally because it's an easy target. I told numerous people

that Backpage is law enforcement friendly and does not support

human trafficking. I've even mentioned how, if Backpage is

ever shut down, another website will take over, likely

overseas, that will not be helpful to law enforcement.

While I don't agree with online prostitution

advertisement, the line between legal and illegal is incredibly

gray. There will always be a demand for sex, illicit or

otherwise, and thus there will always be a venue where people

go to find or advertise for it. I'd rather have a partnership

than an adversarial relationship with your company or others.

So if the need arises, we can work together and we can go from

there, and we can go for those people who are exploiting the

website.

After that, and there's countless responses like that.

Responses from the FBI: Thank you. I appreciate your

proactive efforts to protect our children. Again, thank you.

Another one from the FBI: Thank you very much for

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forwarding this. It's great to know you guys are behind us in

catching up with these pimps.

Another one from the FBI: Thank you for your

response. There's a violent pimp associated with these

postings that was assisted -- I'm sorry, arrested, and two of

his victims have been rescued and are doing well. Can't do

this without your help.

What Backpage developed, according to Carl Ferrer,

which he told my client and others about, is as follows: A

manual that they gave the police that guided them on how to get

information from Backpage that would allow the authorities to

go after the bad apples who were misusing Backpage.

And the proof's going to show, by the way, they don't

only misuse Backpage, they misuse Facebook, they misuse TikTok,

they misuse a number of the other platforms out there. And

basically the people are taking advantage, if they can, of

the -- of online platforms.

But all the things that Backpage did -- and you're

right. Mr. Stone talked to you about Mr. Lacey was the one who

would respond because he was the newspaper guy. So if there

was criticism of Backpage, he would be the one who would

respond.

All right. Well, here's what he was told by

Mr. Ferrer and others: We not only have developed a manual to

guide the police, we turn around subpoenas and requests for

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information in like 24 hours.

And you'll even see, I believe one of the witnesses

that's going to testify here, he'll tell you that he tried to

put an ad -- he actually did put an ad on Backpage and then he

called Backpage, and guess who answered? Carl Ferrer.

And he said, I'm a police officer, and there's an ad

on your site that is illegal. And he gave him some details.

And you can hear the clicking of the keys as they're talking,

according to this police officer, and Carl says, oh, yes. I

see it here. And he said, but it's also -- Carl says, it's

also connected to something else, which is connected to

something else. And he gives him all of it.

So now the police officer -- and the police officer's

part of their group here, part of the prosecution team. Now he

figures, I'm going to try to see if I can trick him. And so he

will -- he republishes the ad, and lo and behold Carl says, oh,

no, I found another ad that's related to it, and that's coming

down also.

And shows it to him, that he responds immediately to

the police. When they tell him that it's an unlawful ad, he

takes it down. Not only does he take it down, but he finds all

the other things that are connected to it and he takes those

down.

And you'll see also from the proof that they would

assist police officers by saying, you called us about this.

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Well, we found it related to another address. And by the way,

because we charged them, we have financial records. And we

will give you the financial records so you can identify who the

people are, and you can find out who the people are who are the

pimps, who are the people who are the actual abusers.

And that's what the proof is going to show, that they

did that. That they were thanked time and time again for their

assistance.

And the other thing was this: At one point in time

they talked about craigslist took down the Adult section. But

what they didn't tell you was that these wrongdoers just went

to other sections of craigslist. They just went to the Dating

section. They went to the Massage section and so on.

And so it wasn't like, oh, we take the Adult down and

that solves it all. If that were true, I guess if that was the

way it should be, every time somebody misused a platform, we'd

just close it down. So I guess we'd close down phones, mail,

FedEx, because every one of those gets misused. Not one of

them that doesn't.

The other thing, they mentioned this thing about my

client talking about Backpage created transparency for

prostitution. Yes, meaning that they would expose the people

who were trying to offer prostitution services. They would

expose them by, first of all, if The Erotic Review number

showed up on a Backpage site, remember, Backpage was working

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with police officers all across the nation. So that means that

Backpage got -- I'm sorry, that Erotic Review got exposed on

that ad, and now the police could see it.

The other thing that they did was the police would use

Backpage to put sting ads up. They would create an ad that

appeared to be prostitution. They would put it up on Backpage

and some of the others, and then they would wait for somebody

to respond. And when they responded, they arrested them.

And so the decision was made that we're not going to

facilitate prostitution. We're going to have all of these

procedures in place where we assist the police in routing out

the people who are abusing our website.

This is an old-time First Amendment guy here. I don't

know if you can see it from there, but he has tattooed on his

hands, "Hold Fast." And hold fast is what he believes in with

regard to the First Amendment, that you work with the police to

rout out the abusers. You don't punish all the people who are

not in any way abusing the website or websites by not

committing any crimes at all.

And so that is basically what happened. As far as

Mike and his journalism, you'll see that he oversees the

writers on all the various newspapers. They've gotten all

kinds of awards. I mean, they even had the Pulitzer Prize. I

mean, they have won tons of awards.

And he is the overall editor and always has been.

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Doesn't operate Backpage, never did. Clearly relied on Carl

Ferrer to run it correctly. Carl represented under oath

several times that he was running the place lawfully. He

stated at one point, it's like, quote: I don't have

prostitution ads on Backpage.

That's what he has said. Now, he's obviously made a

deal. He has a plea bargain. Obviously he would love to have

a recommendation from the prosecution as to what a great job he

did as a witness so that he can minimize what the punishment

might be.

So in the end, my client, in good faith, believed that

he was not facilitating and that Backpage, which he owned a

part of, was not facilitating prostitution. That by working

with the police, number one, they were -- they were exposing

it, if you will. They were providing information and help to

the police. You'll see that there is case after case solved as

a result of that.

Yes, you've heard here in the opening by the

government that a bunch of groups came in and said, oh, there's

prostitution on your website. Well, there are a lot of

websites where there were people trying to commit prostitution.

And my client, in one of those meetings, was adamant

with one of the individuals who worked for NCMEC, which was

the -- basically they would protect -- they were supposed to

protect minors. And my client had said to them in that

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meeting, in a meeting that they had: We'll do everything

possible to keep minors off of our website.

In fact, anytime somebody appeared to be under 21,

they would report them to NCMEC. And they reported so many of

those that at one particular time they were asked to calm down

because they couldn't keep up with all the reports that were

there.

And by the way, Facebook reports, a lot of these

different platforms report to NCMEC. But Mr. Lacey at one

point in time said to this individual, Mr. Allen, he said, your

job is to protect children, and that's what you should be

concentrating on, as opposed to prostitution of adults. Your

job is children.

And he said: And we'll do everything possible to

protect children and not have them in some way associated with

the website.

So in the end, what the choice was from the people who

ran Backpage was you could simply shut it down and then

everybody gets punished, including millions who have done

nothing wrong, or you can work with the authorities and help

them fight the actual wrongdoers.

Understand, the only money that Backpage got from

anybody who advertised was the cost of an ad. If somebody

engaged in some prostitution activity, they certainly didn't

split the money with anybody charged here or anybody at

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Backpage. They sold an ad.

Every platform, the proof will show, is vulnerable to

people who want to commit crimes. And the question is, which

way do you go? Do you just shut it down and punish everybody,

or do you take steps necessary to help rout out the bad apples?

That's what happened here. That's what he was told.

That's what he was shown. He saw these accolades, if you will,

from the various police agencies, and there's like 50 or 60

different ones. You know, you think they all got fooled? That

in some way or another, you know, Backpage was fooling them?

Or do you think they actually were saying, you are helping us,

and together, we are combatting people who would abuse the

website as opposed to facilitating them.

Now, as far as the other charges, money laundering and

so on, if the money -- you know, the money has to be ill

gotten, if you will, and ill gotten means that you had a

specific intent to commit a crime, to -- and that's not here.

This is -- I think that when you look at everything and after

you hear all the proof, you'll see that Mike Lacey had a good

faith belief that they were doing the right thing, that they

were assisting the police.

All these police agencies couldn't be wrong, in his

mind. And we -- they all couldn't -- even the FBI, even the

head of the FBI thanked them for the assistance that they

provided.

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And you'll see Carl Ferrer had a whole cast of

attorneys advising him --

MR. STONE: Objection, Your Honor.

THE COURT: Sustained.

MR. CAMBRIA: And a number of -- a number of the

individual police officers who sent in the thank yous and so

on, my client was totally aware of those and told about those

and believed in good faith that he was in no way violating the

law.

And as far as the -- the last thing I want to talk

about is what I started with, and that is, where he has the

graphic where the money was going out to Hungary. As I said to

you, the key element there is concealment. They have to show

concealment.

There wasn't any concealment. As I indicated, they,

in fact, gave them notice in writing as to where it all was.

And at one point in time, the reason for all this, the proof

will show, is that when the agents should show up at the

regular banks, local banks and so on, the bankers immediately

closed down their accounts.

Mr. Lacey's attorney, local attorney, just dealing

with Mr. Lacey and with the banks on the accounts that they

had, they closed the attorney's account down. And nobody's

accused him of doing anything wrong.

But just the banks, it's like, we're not going to deal

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with any of it. We're out of here.

So that's why they show you the statement about, you

know, my client saying he wanted to be able to protect his

money and all that. At the time he sent that money there,

there was no restriction on the money. There was no

prohibition from him in any way dealing with that money.

And like I say, not only did he not conceal it, but he

wrote and had his accountant and lawyer, in writing, tell the

IRS exactly the details of the money. Exactly. And in their

opening, they left that part out as to the written information

given.

So we have a lot of ground to cover, a lot of

witnesses to talk to. I ask you to keep an open mind. I say

one of the things, remember, that, you know, massage and

escorting and stripping and all these other things that can be

advertised are not prostitution. You'll hear what the

definition is of prostitution as it applies to this case from

Her Honor.

So I ask you to keep an open mind, and at the end, we

will talk about what the proof actually demonstrated in this

case.

Thank you.

THE COURT: Thank you, Mr. Cambria.

Members of the jury, let's go ahead and take about a

15-minute break. You can then come back in and we'll hear from

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additional defense counsel.

And please remember the admonition to continue to keep

an open mind, and we'll continue through the opening

statements.

Please all rise for the jury.

(Jury not present.)

THE COURT: All right. We'll stand in recess.

And Ms. Brunst, be ready to go -- I'm sorry,

Ms. Bertrand. I'm sorry.

MS. BERTRAND: Your Honor, we have our openings

planned.

THE COURT: Well, it didn't look like it to me. You

were all fooling around, so everybody was pointing at one

another. Whoever's going next.

(Recess taken, 3:44 p.m. to 4:01 p.m.)

THE COURT: Please be seated. And the record will

reflect the presence of government counsel, all defense counsel

and clients, and we will bring in the jury.

Who is next?

MR. LINCENBERG: (Indicating.)

THE COURT: All right. All rise for the jury.

(Jury present.)

THE COURT: All right. Be seated.

Mr. Lincenberg, you may begin.

MR. LINCENBERG: Thank you, Your Honor.

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Good afternoon, ladies and gentlemen. I get the fun

job of talking to you at 4:00 o'clock, after you've been here

for a long day.

My name is Gary Lincenberg, and along with my partner,

Gopi Panchapakesan, we have the honor of representing John

Brunst, who's an innocent man who is charged with offenses and

is here today for you to judge his actions in connection with

this trial.

Let me say, before I get into the points that I want

to cover, that I wholeheartedly join in what my colleague,

Mr. Cambria, told you by way of overview with respect to this

case.

Now, my opening statement is going to deal with my

client's role, but what Mr. Cambria said is frankly a defense

for all of the men and women who are in the courtroom here

today.

Now, the government counsel, in his opening statement,

placed before you two overview exhibits that I want to

reference. The first is called prostitution -- the first one

was from 2004 to -- there it goes -- from 2004 to 2010, which

they said was phase one of prostitution marketing strategies.

And they talked about aggregation and posters and the

reciprocal link program.

What they didn't tell you is that there's zero

evidence that my client, Mr. Brunst, was involved at all in

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anything to do with aggregation, anything to do with super

posters, anything to do with a reciprocal link program.

In fact, Mr. Brunst was never even employed by

Backpage. He never worked in Backpage's Dallas office when the

offices moved there in 2013, which covers all of the ads

involved in this indictment. He never worked at that office in

Dallas.

You're going to see a lot of emails in this case.

You'll notice he never had a Backpage email address. He was

not an employee of Backpage.

There's no evidence that Mr. Brunst ever saw any of

the ads that you're going to be exposed to during this trial.

There's no evidence that he ever met or knew or spoke to any of

the advertisers, some of whom you may hear from in this case.

And yet he faces a felony indictment, and he does so

in a case in which my colleague, Mr. Stone, the prosecutor,

never mentioned any of that to you.

It's not that he has to lay out every detail in his

opening. But it highlights the importance of not coming to

quick judgments until you really hear the evidence and what's

going on.

His other major slide was where he said phase two, and

he talked about moderation. Mr. Brunst was not involved in

moderation. Response to press, governmental organizations, law

enforcement, attorney generals -- attorneys, Mr. Brunst was not

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involved in that. And the third part is what they call the

response to credit card Armageddon.

And Mr. Stone did mention Mr. Brunst's role in

connection with dealing with some credit card companies, so I

will address that in my opening statement.

Now, when I discuss Mr. Brunst's role and

responsibilities, unfortunately, it's not going to be eye

popping. His job was not real exciting. At times probably a

little boring. He was not a Pulitzer Prize winning journalist.

He was just an accountant, and he was an accountant who held

jobs as an accountant or a CFO at different times, and that's

what he did.

He's a 71-year-old man who was born in Chicago. He

has a wife. He has six children, a number of grandchildren.

His wife, Mary Ann, and one of their daughters is in the

courtroom with us here today.

Mr. Brunst got a degree in accounting from the

University of Illinois. He worked in a large accounting firm

in his early days. He went to work for various companies, such

as -- if this works -- it's not clicking through.

Maybe you can take over control.

There we go. He went to work for banks, investment

banks, he worked for an aerospace company, all in these

accounting/financial-type roles over the years.

Then in 1992, at the age of about 40, Mr. Brunst moved

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to Phoenix and took a job with a company called New Times. And

New Times, you're familiar with it, of the newspaper here that

Mr. Lacey edited. New Times also grew and it was what we call

a media holding company.

That's who Mr. Brunst worked for for 26 years. A

media holding company. At first it was called New Times. At

some point, after some transactions, it became known as Village

Voice media holding companies -- media holding company. There

were other entities that were set up for different purposes,

but essentially what he did was he worked as a chief financial

officer of a media holding company.

And that company grew over the years. At one point

they had some 18 different, what I'll call operating

businesses, most of them newspapers, around the country. At

one point those various newspapers had some 1,200 employees.

They didn't -- they weren't employees of New Times or Village

Voice media holding companies. Most of them were employees of

either Village Voice or the Phoenix New Times or a Cleveland

newspaper or Backpage, when it started up, or something like

that.

And this is not a very exciting -- there we go -- this

is not a very exciting exhibit, but it gives you a sense of

some of the responsibilities that Mr. Brunst would do.

So, for example, the media holding companies had

investors. One of Mr. Brunst's job would be to interact with,

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for example, Goldman Sachs was a major investor in that Village

Voice media holding company. WPG was a major investor. These

different types of financial people who would want to get

reports on the profits and losses of the businesses and the

like, these are some of the people who Mr. Brunst interacted

with.

Also on this chart, you see it lists some of the

different companies that were held underneath this holding

company. And as you can see, there's all sorts of different

newspapers such as in Cleveland and Miami and the like.

I'm going to let you run the -- Christina, I'm going

to let you run this because I'm not -- it's sort of delaying my

clicking.

Now, the prosecutor referred in his opening statement

to Mr. Brunst as being the CFO of Backpage. Now, Mr. Brunst

did hold a -- a title with all of these different subsidiaries

of CFO. He was a non -- what we would call a nonoperational

CFO of these 18 or 19 different companies.

And the reason he was a nonoperational CFO is because

some of them -- they all had accountants and controllers and

bookkeepers and the like, but sometimes for purposes of

corporate Secretary of State filings, you needed to list a

chief financial officer, and he would be in that position. He

was listed as the CFO. But his only operational role as the

CFO was for this media holding company.

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If you can click to the next. Thank you.

Now, what were his responsibilities?

Mr. Brunst dealt with what I'm going to generally call

the different type of numbers people. So, for example, he

dealt with accounting functions, he dealt with financial

reporting, audits, financing, banking, investor relations,

corporate transactions, obtaining commercial or health

insurance. With regard to corporate transactions, there were a

number of corporate transactions that would take up the vast

bulk of his time during this time period.

He assisted with the buying and selling of different

businesses that were bought and sold by the holding company.

There were some 30 potential acquisitions during these years.

There were about 13 or 14 transactions that closed.

And every time these transactions would close, there

would be new, different companies that would be formed for

these new transactions and different holding companies and

different subsidiaries, and some of them dealt with different

things, and all of the type of things that corporate lawyers

and chief financial officers and investment bankers deal with

when they go through all of these type of transactions.

So let's talk about who some of the people are who he

would deal with in terms of the work he was doing.

So, for example, who would he deal with at the

business units, such as the Village Voice or Backpage or New

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Times? He would deal with usually the controller or the

bookkeeper, because those people had to prepare financial

reports that would come up to the holding company to be made a

part of the larger financial reporting.

And he would also deal with synergizing accounting

systems and things like that so that when a new company came

in, if one was on one accounting system and the other was on a

different one, there was a lot of work to be done in that

regard.

On occasion, he would deal with executives at some of

the subsidiaries. So, for example, in this case, I believe the

prosecution will point out that Mr. Brunst interacted with

Mr. Ferrer at times in yearly meetings where, for example, they

might discuss budgets. And at a certain time of the year,

Mr. Brunst, as the CFO of the holding company, would

participate in these meetings with all of the different 18 or

19 different subsidiary business units that were held under the

holding company.

He would deal with investment bankers. So, for

example, when there was a potential purchase, whether they were

looking to buy or sell a business, such as selling Backpage,

for example, the holding company would bring in investment

bankers such as a company called Duff and Phelps, which would

have a role of determining a valuation so that when they would

negotiate with a potential purchaser of the business, this is

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one of the things they do. Buyers and sellers like to talk

about what the value of the business is.

And in the course of that, for example, with Backpage,

there would be information about the revenue streams. There

would be information about the high percentage of revenue that

came in from adult ads that was openly disclosed, discussed

with investment bankers, discussed with purchasers, discussed

with lenders, and so forth.

Nobody at any of the investment banks ever said, well,

we can't take this money because 94 percent of the revenue is

coming from adult ads or anything of these sort. All of these

were transactions that people dealt with in the ordinary course

of business in good faith.

And in connection with these transactions, he would

deal with corporate attorneys. The transactions needed to be

documented, and it wasn't just the purchase or sale of a

business. If there was a credit line, a credit facility that

needed to be opened up, for example. There's a lot of

paperwork that one would deal with with the banks.

The banks all had Know Your Customer requirements.

They wanted to know who they were dealing with. They wanted to

know the nature of the business. They wanted to look at

whether there was litigation risk, whether there were

outstanding lawsuits, things like that.

Mr. Brunst would put them in touch with lawyers if

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they needed to. That was his role, facilitating the

interaction of the various type of professionals with the

financial people who they're doing business with.

He would play a similar role with accountants. The

media holding companies would be audited every year, and they

were audited by large, large accounting firms, Top 4 accounting

firms at times, and at times I think Top 7 accounting firms.

There were two different accounting firms whose names may come

up in connection with this case.

And he would have to interact with those individuals

in connection with tax advice, in connection with providing the

financial reporting and the like. And when these audits were

being done, he would also have to connect the auditors with --

if they wanted to talk to an operational person at a subsidiary

business unit, he would say, call up so-and-so. If they wanted

to talk to lawyers in connection with transactions or

litigation, he would connect them with so-and-so.

The accounting firms would get what they call

management rep letters, representation letters, about the

business so that the auditing firm could, at the end of their

work, determine whether, for example, the media holding company

or any of its units were, quote, going concerns.

"Going concerns" is an accounting term of art that if,

for example, they see something that is a major risk of falling

apart or, for example, if they thought the business might be

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closed down by federal authorities, they could note that and

not sign off on the accounting.

And, in fact, some of these companies, some of the

lenders, for example, and other types of financial companies,

would from time to time -- oh -- have reputational -- they

would have concerns, and Mr. Ferrer will testify about this at

length, about the reputational concerns that the different

companies had who they dealt with with banking, with credit

card companies, and the like.

This would frequently come up, because these banks and

credit card companies and others knew, for example, that

Backpage was in a space where there was publicity or issues

involving adult entertainment, and so if they were going to do

business, they would look at this and decide whether they

wanted to do business.

And as the prosecutor pointed out, at certain points

and times, some of them decided not to do business. So, for

example, Mr. Stone had as one of his slides in his opening this

slide about how Backpage payment methods changed in around

2015.

So the first thing you should understand is that from

2004 until 2014, 2015, these major credit card companies, Amex,

Visa, MasterCard, were all doing business with Backpage. And

they have KYC, Know Your Customer, departments, anti-money

laundering departments, and the like.

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They chose to do business with them. At a point in

time, that changed, particularly with these companies. What

Mr. Stone didn't tell you is why it changed and what happened

as a result of the change.

So what the prosecutor would like you to focus on is

this idea that, my God, these credit card companies said, we're

not going to process your business anymore. If that isn't

something that puts Mr. Brunst or any of the defendants on

notice that there must be criminal wrongdoing there, what is?

Well, let's talk about what occurred and what led, for

example, to these companies deciding to discontinue processing

credit cards for Backpage.

Mr. Cambria noted all of the different law enforcement

around the country that heaped accolades on Backpage for

assisting. Not all of them did. As Mr. Stone points out,

there were some attorney generals who wrote and said, we don't

like what you're doing.

And there was one sheriff in Cook County named Sheriff

Dart, who --

MR. STONE: Objection, Your Honor.

MR. LINCENBERG: We discussed this.

THE COURT: Let's move forward. Overruled.

MR. LINCENBERG: -- who threatened these credit card

companies. Sheriff Dart threatened these credit card companies

and sent them correspondence. Some of this is documented in

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government exhibits. Sent them correspondence to say, you

should stop doing business with Backpage.

And these credit card companies were like, well, we

don't want to deal with the sheriff, and we don't want to be in

the middle of bad press, so they stopped doing business.

But what happened as a result of that? So you might

say, all right, well, didn't that put these people on notice

that they had an issue? What the evidence will show in this

case is that all of the issues with Sheriff Dart were resolved

in a manner that gave comfort to our clients that, in fact,

Sheriff Dart was the one who was wrong in threatening to shut

them down.

MR. STONE: Objection, Your Honor.

MR. LINCENBERG: My clients were operating in good

faith.

MR. STONE: Objection.

THE COURT: Overruled. Let's move forward.

MR. LINCENBERG: That's what happened with these

credit card companies.

Now, the other thing that the prosecutor didn't note

for you is that in around April of 2015, the media holding

company sold Backpage to Mr. Ferrer. Now, moving forward after

2015, Mr. Ferrer had to deal with payment processing issues,

and at times there was some communication with Mr. Brunst

because the media holding company was a lender to Ferrer at

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this time. They weren't involved in the operations but they

were a lender. And Mr. Brunst has facility and knowledge in

the financial world, and he would from time to time assist in

making an acquaintance or the like.

So, for example, Mr. Stone referenced two emails that

you'll hear about in the case. And these are interesting. One

of them was where Mr. Stone noted that there's an email that

Mr. Brunst talked about how you shouldn't do business -- or

that this bank in Mauritius is a nonstarter. They're not going

to do business with you.

What he didn't tell you was what the rest of the email

chain discusses. And that's because they had already reached

out to this bank in Mauritius, and the bank in Mauritius had

decided that they didn't want to deal with the reputational

concerns and do any further business with Backpage.

So what the email is, why are you contacting them

again? They already turned you down. Try to contact somebody,

and Mr. Ferrer did contact other payment processors, and they

did do work going forward. But that's what the Mauritius --

this discussion about this Mauritius bank is about. It's about

why would you contact a bank that you already contacted?

The second email that Mr. -- I'm putting on the screen

what the organizational chart came to in 2015. Hold with me

for a moment before we get to that.

The second email that was referenced in Mr. Stone's

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opening was about a company called Website Technologies.

Mr. Stone suggested that this company was set up so that money

could be processed through Website Technologies and people

wouldn't know that it was being paid to Backpage.

Now, what he didn't tell you is Website Technologies

was a company that Carl Ferrer formed, a technology company,

which he hoped would provide technical support for internet

companies, website development, deal with data privacy issues

and the like. It was a real company. My client had nothing to

do with it, but it was a real company.

Second, what the evidence will show is that when

Website Technologies submitted an application for payment

processors, it was disclosed that they were related to

Backpage. And I believe that Mr. Ferrer will testify that with

regard to dealing with the banks and the lenders and the

payment processors, even while he has been purchased through

his agreement by the government, he will still tell you, I

never lied to financial institutions. That was one thing I

wouldn't do.

And part of that is because he knew Mr. Brunst was an

honest, straight shooter who would never lie to financial

institutions and had some insight into the dealings with

financial institutions.

So April of 2015, there was a sale of Backpage. It's

kind of important in this case because a number of the ads and

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financial transactions that are charged in this case take place

after April of 2015, after the sale takes place.

So if Mr. Ferrer is engaged in posting -- of Backpage

is engaged in the posting of ads, certainly none of these

defendants had anything to do with it. My client never had

anything to do with it even before 2015 or anything of the

sort.

And this is essentially the structure of the company

that Mr. Brunst worked for as of April 2015. Medalist Holding

Company oversaw some other different subsidiaries. You see a

company called Cereus Properties. Cereus Properties was the

company that all of the investment banking and banking and

legal wizards who put the deal together suggested be the

lending institution, because it was a seller-financed

transaction, so that the holding company loaned money to Ferrer

and Ferrer would make loan payments.

And one of the things that Mr. Brunst dealt with after

2015, where he had some continuing interactions with

Mr. Ferrer, was with regard to loan payments. So as the CFO of

the holding company, he would check with all of the different

entities, but in this case Backpage, to see if, for example,

there's money owed, that it shouldn't be paid. Or if it's not

paid and if Mr. Ferrer said, can I have a modification or an

extension, sometimes it's called a forbearance agreement,

Mr. Brunst would be involved in some of the communications

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relating to the forbearance agreement.

Now, the -- when the government was talking about this

company, Website Technologies, and they referenced an email

involved in the payment processing and this idea that, if you

recall, the email was Mr. Brunst being in a discussion about

making sure that Website Technologies and Backpage remained

separate for corporate purposes.

What the government didn't tell you about was the rest

of that email chain. And what that says is that the reason why

these structures needed to be separate was because the chief

technology officer for Backpage and one of his jobs was to try

to keep Backpage certified as what's called PCI-certified.

And PCI is a payment card industry data security

standard. And so if you're a website operator, you want to be

PCI-certified. And if Website Technologies is not

PCI-certified and Backpage is PCI-certified, and they're one

company, then Backpage becomes uncertified. And you'll see

that when you see the email.

This has nothing to do with concealing Backpage from

payment processors. And that's why it's important, when you

hear a little snippet of an email out of context, in this case,

way out of context, it's important to wait until you hear the

cross-examination.

Now, ladies and gentlemen, as a general matter,

Mr. Brunst had no involvement in marketing or compliance or

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legal issues. You heard what he did for his job. And in fact,

the person who he reported to, Jim Larkin, used to always say

to him: Stay in your own swim lane. You deal with the

financial issues, the accounting -- and the accounting, the

auditors and the like, you know --

MR. STONE: Objection, Your Honor.

THE COURT: Overruled.

MR. LINCENBERG: You deal with that. I'll deal with

the other issues, whether they're the legal issues or the

different operational issues involving the newspapers of

Backpage.

Did Mr. Brunst have an understanding that there was a

compliance section in place, this ad moderation group that

you'll hear, for example, from Mr. Spear -- Spear's attorney

about? He knew that there was an ad moderation program in

place. He wasn't the one reviewing it.

Did Mr. Brunst know that there were terms of use that

were involved on the website? He had that type of general

knowledge that people had to comply with terms of use. He

wasn't involved in developing it or enforcing it. That wasn't

part of his role.

He generally stayed abreast of legal issues because he

had to communicate them to the banks or financial institutions

that might have questions about them.

And so, in the end, when you think about the

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prosecutor's opening statement where he's talking about

particular ads, say, well, what did Mr. Brunst have to do with

that? Did he ever see them, create them, talk to anybody? No.

Did he have any dealings with the businesses that

posted them? No.

What he did was he did his job, and he did it honestly

and in good faith. And if questions were raised by the people

he dealt with on issues like adult ads, he would provide them

either the contact person, whether it was counsel or a CEO at

one of the newspapers or Backpage, and put them in touch with

them so that their concerns could be addressed or forward

information that he received from them.

He never promoted any prostitution. He never

concealed any money that came to the holding companies. You'll

see that what these money laundering counts are is it might be,

for example, a wire that was sent from Backpage as repayment of

a loan to the holding company. That's open. The banks see it.

It's recorded on income statements. The outside auditors see

it. It's all open. Nothing is concealed.

And there was -- and at the end of this case, I

believe that when you go back and listen and review the

evidence and look at what my client's role was, you'll see that

he never was dishonest to anybody. He did his job honestly, in

good faith, and he never committed the crimes that are charged

in this indictment.

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Thank you very much.

THE COURT: Thank you, Mr. Lincenberg.

Members of the jury, we are at about -- well, not --

just beyond 4:30, and as I mentioned to you, we would try to

aim for that goal and it looks like we made it.

I do want to just say a couple of things, and you may

forget about this over the weekend, which is completely fair.

You have now been given lanyards with your juror

number on them. Please make sure that when you are beginning

to come into the building, to put those on. And that's for the

purposes of the people who work in the courthouse, the lawyers,

potential witnesses, and so on will identify you as a juror and

generally try to stay away, or at least they should.

And again, throughout your time as a juror, you should

always try to avoid communicating with people that might be in

and around the courthouse. And that's just simply to protect

the integrity of the process as we go through it.

I will give you a modified version of the

admonishment, and as I told you before, you're going to hear me

repeat this because it's vitally important.

You are only a fraction of the way through your jury

service. You've only heard from two counsel, and there are

other parties that wish to speak to you as well. And so it is

vitally important, until the very end of the case, once it's

handed over to you, that you not form any conclusions or

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opinions, continue to keep an open mind, listen intently as you

have been to all of the statements that are made in the opening

arguments of all counsel.

With that said, I again reiterate the importance of

not viewing any material, not Googling, researching, I don't

know if it's called Xing or Twittering, I guess. Not go on to

any Instagram. Don't -- well, it's hard not to avoid some of

these feeds that come in. Swipe it away. Hand it over to

someone, tell them to remove it from your phones or your iPads.

If you have family members that are listening to the news, have

them turn it down if something comes on. Walk out of the room.

It's vitally important. As you see, we've gone

through painstaking processes to seat a jury who could be fair

and impartial, and if something were to occur, it may disrupt

the entire process, and I don't think we want to start that

process all over again even at this juncture.

So I do tell you that you should just do your level

best to enjoy the weekend, and as we are upon the Labor Day

weekend, and I think Liliana provided you in the jury room a

calendar so that you're reminded, we are not in session

tomorrow because I know some of you probably planned to go out

of town. And we are not in session on Tuesday because many

people return late on Monday and they want to get things in

order for the week.

And so we will resume on Wednesday and Thursday and we

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have half-day trial on Friday.

Now, from time to time I will probe you on a Friday

morning or a Friday towards the noon hour if we can go a little

bit further, but that will not always be the case. Because

sometimes we might have a witness on the stand and it might be

bumping up against the noon hour. We want to complete that

witness, if it doesn't create an inconvenience for any of you

jurors. So just bear that in mind.

But with that, you will exit. Leave your juror

badges -- badge numbers on you, and follow the direction of

Liliana. And with that, please enjoy your weekend.

Please all rise for the jury.

JURY MEMBER: Have a good weekend.

THE COURT: Thank you.

(Jury not present.)

THE COURT: All right. Please be seated. And I ask

those who are in the public gallery not to leave until the

jurors have had an opportunity at least to make their way out

of the building. I would say if you'd say in your seats for at

least 5 or 7 minutes, I would appreciate that.

Now, let me just make a couple of comments. We've

screened this jury. We've asked them if they've heard anything

about the case. Many of them have not. I can't recall whether

or not anyone who's on here had heard.

Mr. Cambria, you did mention something about

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Mr. Larkin. I want everyone to be mindful, this jury does not

necessarily know about Mr. Larkin. So please be mindful of

that.

And with that, we will stand in recess until next

Wednesday.

MS. BERTRAND: Your Honor, what time would you like

the lawyers here on Wednesday?

THE COURT: Unless you need me for something which

should occur at 8:30 or even a little bit earlier -- and you

can certainly send a note to my chambers mailbox -- I would

expect you to be in the courtroom, seated and ready to go, by a

quarter to the hour. And I'll ask that the juror members come

in promptly at 9:00.

MS. BERTRAND: Thank you, Your Honor.

MR. RAPP: Your Honor? Over here, Mr. Rapp.

THE COURT: Yes.

MR. RAPP: We are putting our first witness on on

Wednesday. We've disclosed that -- the first witness to the

defense and we have provided them a chronology of the exhibits

and the manner we intend to admit it through -- admit the

exhibits through this witness.

THE COURT: Did you give that to me as well, Mr. Rapp?

MR. RAPP: We haven't, but we certainly would.

THE COURT: Yes, please do. Thank you.

MR. RAPP: All right. So we just want to inquire as

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to whether there will be some type of a hearing on those

exhibits and whether we can try to vet the admissibility of

those exhibits prior to putting the witness on.

THE COURT: Well, it sounds like, then, if that is the

case, I don't want to delay this jury coming in. Like I said,

if you need to meet with me earlier, alert my courtroom staff

through my chambers mailbox or through Liliana, and I can take

the bench as early as 8:15 so we can resolve those issues.

I don't want them to be raised in the process, to the

extent that they need not be, in the witness testimony.

MR. RAPP: Right.

THE COURT: So please look closely at those associated

exhibits with the first witness, and then I can take up those

matters first thing on Wednesday.

MR. LINCENBERG: Your Honor, it may be helpful for the

Court to be aware, there's like 400-plus exhibits that were

identified earlier this week. The defense obviously needs to

start going through and -- and what is going to be objected to.

I'm just alerting the Court that there's going to be a lot of

discussion on this.

THE COURT: All right. Well, thank you for the

heads-up.

All right.

(Proceedings adjourned at 4:41 p.m.)

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C E R T I F I C A T E

I, JENNIFER A. PANCRATZ, do hereby certify that I am

duly appointed and qualified to act as Official Court Reporter

for the United States District Court for the District of

Arizona.

I FURTHER CERTIFY that the foregoing pages constitute

a full, true, and accurate transcript of all of that portion of

the proceedings contained herein, had in the above-entitled

cause on the date specified therein, and that said transcript

was prepared under my direction and control.

DATED at Phoenix, Arizona, this 7th day of September,

2023.

s/Jennifer A. Pancratz

Jennifer A. Pancratz, RMR, CRR, FCRR, CRC

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