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Seetha Ramachandran (NY Bar No. 3944121, admitted pro hac vice)

PROSKAUER ROSE LLP

Eleven Times Square

New York, New York 10036-8299

Telephone: (212) 969-3455

Facsimile: (212) 969-2900

sramachandran@proskauer.com

Thomas H. Bienert, Jr. (CA Bar No.135311, admitted pro hac vice)

Whitney Z. Bernstein (CA Bar No. 304917, admitted pro hac vice)

BIENERT KATZMAN LITTRELL WILLIAMS LLP

903 Calle Amanecer, Suite 350

San Clemente, California 92673

Telephone: (949) 369-3700

Facsimile: (949) 369-3701

tbienert@bklwlaw.com

wbernstein@bklwlaw.com

Attorneys for James Larkin

Additional counsel listed on next page

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA 

United States of America,

Plaintiff,

vs.

Michael Lacey, et al., 

 

Defendants.

Case No. 2:18-cr-00422-PHX-SMB

MOTION TO PARTIALLY VACATE 

SEIZURE WARRANTS AND RELEASE 

FUNDS TO DEFENDANTS

(Oral argument requested)

Case 2:18-cr-00422-DJH Document 1366 Filed 10/26/21 Page 1 of 24
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MOTION TO PARTIALLY VACATE SEIZURE WARRANTS AND 

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Paul J. Cambria, Jr. (NY Bar No. 1430909, admitted pro hac vice)

Erin McCampbell (NY Bar. No 4480166, admitted pro hac vice)

LIPSITZ GREEN SCIME CAMBRIA LLP 

42 Delaware Avenue, Suite 120

Buffalo, New York 14202

Telephone: (716) 849-1333

Facsimile: (716) 855-1580

pcambria@lglaw.com

emccampbell@lglaw.com

Attorneys for Michael Lacey

Bruce Feder (AZ Bar No. 004832)

FEDER LAW OFFICE PA

2930 E. Camelback Road, Suite 160

Phoenix, Arizona 85016

Telephone: (602) 257-0135

bf@federlawpa.com

Attorney for Scott Spear

Gary S. Lincenberg (CA Bar No. 123058, admitted pro hac vice)

Ariel A. Neuman (CA Bar No. 241594, admitted pro hac vice)

Gopi K. Panchapakesan (CA Bar No. 279856, admitted pro hac vice)

BIRD, MARELLA, BOXER, WOLPERT, NESSIM,

DROOKS, LINCENBERG & RHOW PC

1875 Century Park East, 23rd Floor

Los Angeles, California 90067-2561

Telephone: (310) 201-2100

Facsimile: (310) 201-2110

glincenberg@birdmarella.com

aneuman@birdmarella.com

gpanchapakesan@birdmarella.com

Attorneys for John Brunst

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TABLE OF CONTENTS

Table of Contents

I. INTRODUCTION........................................................................................................... 1

II. RELEVANT FACTUAL BACKGROUND................................................................ 3

A. The Government Wrongly Seized the Entirety of an Untainted Account.... 3

B. The Government Cannot Trace Loan Payments Tied to the Sale of 

Backpage’s Foreign Operations to Illegal Activity............................................ 3

C. The Government Impermissibly Seized Over $10 Million in Funds from 

Attorney Retainer Accounts................................................................................. 4

D. Even Under its Own Flawed Theory Regarding “Adult” Ads, the 

Government Has Over-Seized Defendants’ Funds.......................................... 5

III. ARGUMENT .................................................................................................................... 7

A. The Government May Not Seize Legitimate, Untainted Assets Pre-Trial. ... 7

B. The Government Cannot Trace the Four Asset Categories to Crimes 

Alleged in the Indictments and Therefore Lacks Probable Cause to Support 

Their Forfeiture. .................................................................................................... 9

1. “Proceeds Traceable to” .......................................................................... 9

2. Property “Involved In” Money Laundering........................................ 13

C. The Court Can Order the Release of Four Limited Categories of Untainted 

Assets in the Interest of Justice. ........................................................................ 15

D. Defendants Are Entitled to Cost and Fee Reimbursement In Light of a 

Mistrial Caused by the Government................................................................. 15

IV. CONCLUSION............................................................................................................... 16

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TABLE OF AUTHORITIES

Table of Authorities

Cases Page(s)

620,349.85 U.S. Currency, No. 13-CV-3966-RJD-SMG,

2015 WL 3604044 (E.D.N.Y. June 5, 2015)..................................................................................... 13

Arizona v. Washington,

434 U.S. 497 (1978).............................................................................................................................. 15

Backpage.com LLC v. Dart,

807 F.3d 229 (7th Cir. 2015)............................................................................................................... 10

Backpage.com, LLC v. Cooper,

939 F. Supp. 805 (D. Tenn. 2013)...................................................................................................... 10

Backpage.com, LLC v. McKenna,

881 F. Supp. 1262 (W.D. Wash. 2012).............................................................................................. 10

Caplin & Drysdale, Chartered v. United States,

491 U.S. 617 (1989)................................................................................................................................ 8

Doe v. Backpage.com LLC,

104 F. Supp. 3d 149 (D. Mass. 2015) ................................................................................................ 10

Fed. Trade Comm’n v. Johnson,

No. 210CV02203MMDGWF, 2015 WL 8751693 (D. Nev. Dec. 14, 2015) ................................. 8

Honeycutt v. United States,

581 U.S. ___, 137 S. Ct. 1626 (2017)................................................................................................... 7

Kaley v. United States,

571 U.S. 320 (2014)............................................................................................................................7, 8

Luis v. United States,

578 U.S. 5, 136 S. Ct. 1083 (2016) .............................................................................................7, 8, 15

United States v. $3,148,884.40 U.S. Currency,

76 F. Supp. 2d 1063 (C.D. Cal. 1999)................................................................................................ 14

United States v. $8,221,877.16 in United States Currency,

330 F.3d 141 (3d Cir. 2003) ..............................................................................................................7, 9

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TABLE OF AUTHORITIES

United States v. $448,342.85,

969 F.2d 474 (7th Cir. 1992).........................................................................................................12, 13

United States v. Abhishek Krishnan's Real & Pers. Prop.,

469 F. Supp. 3d 481 (E.D.N.C. 2020)............................................................................................... 14

United States v. All Funds,

832 F. Supp. 542 (E.D.N.Y. 1992)..................................................................................................... 13

United States v. Bornfield,

145 F.3d 1123 (10th Cir. 1998).................................................................................................9, 11, 13

United States v. Cosme,

796 F.3d 226 (2d Cir. 2015) ............................................................................................................9, 11

United States v. Cosme,

No. 17-1759-CR(L), 2021 WL 2964322 (2d. Cir. July 15, 2021) ................................................... 12

United States v. Crozier,

777 F.2d 1376 (9th Cir. 1985)............................................................................................................... 7

United States v. Grant,

No. S4-05-CR-1192, 2008 WL 4376365 n.1 (S.D.N.Y. Sept. 25, 2008) ......................................... 9

United States v. Haleamau,

887 F. Supp. 2d 1051 (D. Haw. 2012)............................................................................................... 12

United States v. Monsanto,

491 U.S. 600 (1989)............................................................................................................................7, 8

United States v. Seher,

562 F.3d 1344 (11th Cir. 2009)........................................................................................................... 13

United States v. Tencer,

107 F.3d 1120 (5th Cir. 1997)............................................................................................................. 13

United States v. Unimex, Inc.,

991 F.2d 546 (9th Cir. 1993)................................................................................................................. 8

Statutes

18 U.S.C. § 981(a)(1)(A).................................................................................................................9, 11, 13

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TABLE OF AUTHORITIES

18 U.S.C. § 981(a)(1)(C)............................................................................................................................. 9

18 U.S.C. §§ 981, 982.......................................................................................................................7, 9, 11

18 U.S.C. § 983(c)(3)................................................................................................................................ 13

18 U.S.C. § 984 ...................................................................................................................................13, 14

21 U.S.C. § 853(e)....................................................................................................................................... 7

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I. INTRODUCTION

The government has seized and restrained more than $135 million of liquid assets from 

Defendants, their family members, and various companies owned by Defendants, plus tens of 

millions of dollars in real estate and other illiquid assets, plus over $10 million in attorneys’ funds. 

To understand the sheer breadth of the government’s seizures here, Backpage.com’s aggregate 

revenues over the years exceeded $500 million (Doc. 230 at ¶ 1)—meaning the 50 charged ads 

accounted for roughly 0.0001% to 0.0002% of Backpage’s revenues. In other words, roughly 

99.9998% to 99.9999% of Backpage’s revenues are not derived from the charged ads.1 But that is 

an issue for another day. 

Counsel for defendants Lacey, Larkin, Brunst, and Spear (“Defendants”)2 have continued 

to prepare for and try this case even as they are incurring substantial debt to do so.3 Now facing 

the prospect of a second trial, following a mistrial caused by the government’s misconduct (see 

Docs. 1355, 1355-14), defense counsel requires additional funds to effectively continue. Even their 

ability to challenge the full scope of overbroad and unlawful pretrial seizures is curtailed by the lack 

of funds.4 

For the sake of judicial efficiency, to fund the continued defense of this case and to ensure 

continuity of counsel, and in the interest of time – as a second trial is fast approaching – this motion 

does not address all of the government’s improper seizures but is instead limited to seeking the 

release of some of the specific, identifiable, and untainted funds, funds that the government has 

not traced, and cannot trace, to alleged illegal activity. These include: (1) over $400,000 unrelated 

1 From the millions of adult-oriented classified ads that ran on Backpage.com over the years, 

the government identified and charged just one (1) ad that expressly offered sex in exchange for 

money. None of the forty-nine other charged ads expressly offered sex in exchange for money, 

nor did any other Backpage.com ad that the government has identified in its disclosures to the 

defense. The solitary sex for money ad charged in the indictment was a free ad, which generated 

absolutely no revenue for Backpage.com.

2 Defendants Padilla and Vaught were deprived of their counsel of choice when the 

government refused to return funds and previously received appointed counsel. Docs. 565, 566. 

3 Doc. 1355-13, Exh. L at 74:18-21 (“You know, every one of us who are paid counsel are 

under water in this case . . . .”). 

4 Importantly, Carl Ferrer has been permitted to keep funds set aside for his attorney’s fees. 

See United States v. Ferrer, Case No. 2:18-cr-00464-PHX-SMB, Doc. No. 7-2 at 9:7-10. 

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to Backpage.com, seized from an account holding only loan payments from the sale of newspaper 

businesses and rent from the sublease of an office building to the buyer of the newspapers, Voice 

Media Group (“VMG Depository Account Funds”); (2) assets seized that relate to revenues from 

Backpage.com’s operations outside of the United States (“Foreign Loan Payments”); (3) over $10

million seized from attorney trust accounts (“Attorney Retainer Funds”); and (4) assets seized that 

relate to revenues from Backpage’s non-adult advertising, as the government concedes that 

advertising was lawful (“Non-Adult Advertising Proceeds”). Because the government has failed 

to show that any of these four categories of assets are traceable to the crimes alleged in the 

indictment or the civil complaint,5 the government lacks probable cause to support their forfeiture 

of these assets. 

The Court should partially vacate the seizure warrants that currently restrain these assets 

and order the release of these limited sets of assets to the Defendants.6 While the property was 

seized pursuant to civil seizure warrants (because of the government’s choice to file its civil 

complaints in different district from the criminal case), and there is a pending civil forfeiture case

as to some of these assets, that case has been properly stayed pending the outcome of this criminal 

proceeding. Thus, the government’s current forfeiture focus is in the criminal case, where the 

government has noticed the potential forfeiture of some of these civilly seized properties in the 

indictment. Further, this Court is best positioned to evaluate the relevant facts and equities, 

including the Defendants’ Sixth Amendment right to counsel and the need for continuity of 

5 First Amended Consolidated Master Verified Complaint for Forfeiture, United States v. 

$1,546,076.35 In Bank Funds Seized From Republic Bank of Arizona Account ‘1889, et al., No. 18-8420 

(C.D. Ca. June 1, 20210), ECF No. 108 (the “Complaint”).

6 Indeed, the government has agreed that this Court is the appropriate forum to litigate these 

issues, and has refused to even discuss the possibility of an out-of-court resolution regarding the 

restraint of the four categories of assets at issue because this Court is considering the matter. Exh. 

L (Email from Scott Garringer Chief of the Criminal Division, U.S. Attorney’s Office, Central 

District of California, to counsel for Defendant Larkin, October 18, 2021) (“I have reviewed your 

requests and the four categories of assets you seek to be returned . . . we are not going to intervene 

in the negotiations, particularly given the currently-pending briefing schedule on the motion you 

informed the Court you would be filing, which we do not want to delay.”).

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counsel through a second trial that only became necessary due to the government’s misconduct at 

the first trial. 

II. RELEVANT FACTUAL BACKGROUND

A. The Government Wrongly Seized the Entirety of an Untainted Account.

The government seized $407,686.14 from an account held by Cereus Properties, LLC 

(“Cereus”).7 That account (“VMG Account”) exclusively held proceeds from Defendants’ January 

2013 seller-financed sale of their sizeable print newspaper business (including, e.g., The Village 

Voice) to Voice Media Group (VMG), a media company based in Denver, Colorado. Declaration 

of Jed Brunst (“Brunst Decl.), ¶ 2, Exh. A. Through Medalist, Defendants sold their newspaper 

business to VMG for $27 million. Id. Because the sale was seller-financed, Medalist received the 

purchase price for the sale over time in the form of loan payments. The corresponding promissory 

note was held by another one of Medalist’s subsidiaries, and the loan payments went to Cereus 

Properties. Id., ¶¶ 3-4, Exh. B, Exh. C. 

Before filing this motion, Defendants sought the release of these funds from the 

government. Exh. K. The government initially refused, citing several 2017 deposits that the 

government claims, without proof, were tainted. Exh. J. As the account ledger demonstrates, the 

only deposits into the account in fact came from VMG and either were payments on “notes 

receivable,” i.e., payments on the loan that financed VMG’s purchase of the newspapers, or “rent” 

that VMG paid to sublease an office building. Brunst Decl., ¶ 5, Exh. D.8 The funds transferred 

to the VMG Account were completely unrelated to Backpage.com, and the government has zero 

evidence to the contrary.

B. The Government Cannot Trace Loan Payments Tied to the Sale of 

Backpage’s Foreign Operations to Illegal Activity.

As the government knows, Defendants, through Medalist, sold the Backpage.com business 

7 Cereus is an entity held by Medalist Holdings, Inc. (“Medalist”). Medalist is primarily owned 

by Defendants.

8 A government supervisor later conceded that, as to these funds, “there may be room to 

negotiate” with the line prosecutor. Exh. J. But the defense should not have to “negotiate” the 

release of funds that are clearly untainted. 

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to Carl Ferrer, in two seller-financed transactions, to two different entities that respectively held 

Backpage’s domestic and foreign operations. The foreign sale is relevant for the purposes of this 

motion. In April 2015, Medalist sold Backpage’s foreign classified advertising business to an entity 

owned and controlled by Ferrer. Exh. M (“Quigley Decl.”), ¶ 4. In short, the sale of Backpage’s 

foreign operations involved the sale and assignment of a license to operate Backpage abroad.9 

Brunst Decl., ¶¶ 6-8, Exhs. E-G. Ferrer, through his entity (“UGC”), purchased that foreign 

license for $74.3 million. Id., Exh. G (Ferrer signed each of these documents as CEO). A

corresponding Purchase and Sale Agreement and Loan Agreement reflects that the sale was sellerfinanced. Id., Exh. H. The Loan Agreement covers Backpage’s “Foreign Operations.” Id., p. 1.

Under the loan documents, and as Defendants’ internal accounting reflects, they received a 

stream of loan payments in connection with their sale of Backpage’s foreign operations and a 

separate stream of payments in connection with their sale of Backpage’s U.S. operations. Id., ¶ 10, 

Exh. I (accounting ledger). As the ledger demonstrates, through 2018 (when the indictment issued 

and the loan payments ceased), the total payments on both loans amounted to more than $172

million. Id. Of that amount, $76.3 million, or nearly 45%, was payments from UGC on the 

foreign loan with funds derived from Backpage’s foreign operations. Id. 

There are no charges here, nor allegations in the government’s Complaint, concerning 

Backpage’s hosting of adult classified advertising in foreign countries or revenues from foreign ads. 

Importantly, despite being well-aware of the separate sales of the Backpage.com domestic and 

foreign operations to Ferrer’s entities, the government’s affidavits supporting the seizure warrants 

said absolutely nothing about the separate sales, the agreements documenting the sales, the 

promissory notes, or the payments on those notes—but just mentioned a “purported” sale. 

C. The Government Impermissibly Seized Over $10 Million in Funds from 

Attorney Retainer Accounts.

The government also seized over $10 million held in trust by lawyers for Defendants or 

their companies—retainers that would have been used, in large part, to pay Defendants’ legal fees 

9 The “Intellectual Property License” granted the seller of the license the right to operate 

Backpage in “all countries world-wide, except for the United States of America.” Brunst Decl., 

Exh. E at 2.

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defending this action.10 

Ferrer’s entities owed substantial money to a Medalist subsidiary under the purchase money 

promissory notes. Quigley Decl., ¶ 4. In 2017 and 2018, Medalist deposited funds into the Rusing 

Lopez & Lizardi (“RLL”) trust account in anticipation of future litigation. Id. To fund those 

deposits, Medalist directed Ferrer’s entities to pay certain sums they owed Medalist’s subsidiary

under the notes directly to RLL. Id., ¶ 5. Ferrer’s entities transmitted $2 million in payments on 

the domestic debt to RLL and over $3.2 million in payments on the foreign debt to RLL. Id., ¶¶ 

6-8, Exh. A. 

Further, in July 2012, three Medalist subsidiaries were named as defendants in a civil action 

in Washington state. Counsel for Medalist sought reimbursement for defense costs from a Travel’s 

insurance policy Medalist had obtained for itself and its subsidiaries. Id., ¶ 12. In 2018, Traveler’s 

agreed to reimburse legal fees exceeding $1.7 million and other defense costs exceeding $400,000—

a total of more than $2.1 million—which it wired to Perkins Coie’s trust account on March 15,

2018. Id., ¶¶ 13-17. The government seeks to forfeit approximately $2.9 million from the Perkins 

Coie trust account, but roughly 75% of those funds were the Traveler’s insurance reimbursement. 

Id., ¶ 18. 

On behalf of Defendants, counsel for Medalist also arranged trust deposits with numerous

other law firms in connection with pending or anticipated litigation, with those deposits funded by 

Backpage-associated entities pursuant to contractual obligations to advance defense costs for

Defendants and their companies. Id., ¶ 19. A substantial portion of the trust deposits the 

government seized here, including the RLL trust deposits, were sourced from Backpage’s foreign 

operations, namely loan payments in connection with the sale of Backpage’s foreign operations. 

Id.11

D. Even Under its Own Flawed Theory Regarding “Adult” Ads, the 

Government Has Over-Seized Defendants’ Funds.

The government seized at least $136 million in liquid assets, and the true value of the total

10 The companies were obligated to advance defense costs to Defendants.

11 Counsel in this case generally were retained before the seizures of the IOLTA accounts 

and Defendants’ personal assets. 

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assets is likely much higher,12 under a flawed theory that all of Backpage.com’s “adult” ads, and all 

revenue from those ads, was criminal. For that reason, the government’s seizures are completely 

untethered to the de minimis proceeds Backpage received from the 50 charged ads. 

But the government has never proven that any, let alone all, of the “adult advertisements” 

on Backpage.com were criminal. The government’s seizures all were supported by the affidavits 

of U.S. Postal Inspector Lyndon Versoza. Versoza admitted that many Backpage ads had 

“seemingly innocuous language,” but claimed their “otherwise neutral or innocuous terms” were a 

“coded language for sex trafficking and prostitution,” showing the ads related to unlawful conduct. 

Exh. N (“Versoza Affidavit”), ¶ 31. In stark contrast, the government’s lead witness in the recent 

mistrial, Special Agent Supervisor Fichtner, testified it was not possible to tell whether any of 

the scores of classified ads he presented at trial (ads similar to those described in the Versoza’s 

Aff.) actually related to unlawful conduct. See, e.g., Doc. 1355-12 at 94-95.

Even assuming arguendo that the government’s position is accurate, the government itself 

admits that it has no claim to non-adult and admittedly untainted revenue. See infra, Section 

II(B)(1)(d); Complaint at ¶ 107 (arguing that “more than 90 percent of Backpage’s revenue” 

“[b]etween 2004 and April 2018” came from Backpage.com’s “adult category”); Doc. 1355-6 at 26 

(“And speaking of revenue, evidence will show that during the time of this letter at the end of 2010,

these defendants were generating -- Backpage was generating $30 million a year in revenue, the vast

majority of which, more than 94 percent, from fees they were charging customers to post their

prostitution ads on the website.”). The government offers no basis to establish that the non-adult 

revenue is forfeitable. These seizures are overbroad, even under the government’s own theory, 

and the portion of the seized liquid assets attributable to non-adult advertising must be returned.

12 This is because (a) this amount does not include the numerous real properties the 

government has seized, (b) most assets have appreciated since the seizures, and (c) Defendants 

lack the exact amount seized, as the government has not identified the amount seized in certain 

instances, alleging only that it has seized “any and all funds in the account;” these seizures are thus 

unaccounted for in this total.

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III. ARGUMENT

A. The Government May Not Seize Legitimate, Untainted Assets Pre-Trial.

To seize or otherwise restrain property pretrial, the government is required to trace the 

property directly to the offense giving rise to the forfeiture.13 The Supreme Court has made clear 

that the government may not seize or otherwise restrain property pre-trial unless those seizures or 

restraints are supported by probable cause to believe that the specific property is traceable to the 

alleged criminal activity, and therefore will be forfeitable.14 Probable cause determinations are 

subject to plenary review, and the government must release any property it fails to show is subject 

to forfeiture. 

So far, the government has avoided accountability for its excessively broad seizures with 

the tautologous argument that its civil seizures are unreviewable because the same assets are subject 

to a restraining order in the criminal case pending before this Court.15 But that is wrong16 and, in 

any event, restraining orders cannot establish probable cause for these indiscriminate and 

overbroad forfeitures. Rather, they merely allow the government to restrain the assets pending the 

criminal trial based on a probable cause showing in the civil cases.17 Where the government failed 

to trace the assets to the crimes alleged in the indictment or the Complaint, as is the case here, 

there never was a lawful basis for their pretrial restraint to begin with. Under these circumstances, 

the government cannot continue to restrain the assets at issue.18 

13 18 U.S.C. §§ 981, 982; United States v. $8,221,877.16 in United States Currency, 330 F.3d 141, 

158 (3d Cir. 2003). 

14 Luis v. United States, 578 U.S. 5, 136 S. Ct. 1083, 1090-92 (2016); Honeycutt v. United States, 

581 U.S. ___, 137 S. Ct. 1626, 1633 (2017); Kaley v. United States, 571 U.S. 320, 323-24 (2014). 

15 See In re Any & All Funds Held in Republic Bank of Arizona Accts. 1889, et al., Case No. 18-

06742-RGK (C.D. Cal.), Doc. No. 53 at 6.

16 Significantly, most assets the government seized from Defendants, their families, or their 

companies are not subject to a criminal restraining order or preliminary order of forfeiture.

17 21 U.S.C. § 853(e) (allowing for pretrial seizure of assets based in part on a finding that 

there is “probable cause to believe that the property to be seized would, in the event of a 

conviction, be subject to forfeiture”); see United States v. Crozier, 777 F.2d 1376, 1382 (9th Cir. 1985) 

(“the court may enter a restraining order against property which may be subject to forfeiture under 

federal drug laws”).

18 See Luis, 136 S. Ct. at 1092 (distinguishing its prior cases -- United States v. Monsanto, 491 U.S. 

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The government also has erroneously argued that Defendants must make the showing 

required by United States v. Monsanto to successfully move for the release of any assets before trial. 

But Monsanto applies where the government has probable cause to seize defendant’s assets or, in 

other words, where the property itself is tainted.19 Here, because Defendants seek the release of 

legitimate, untainted funds for which the government does not have probable cause to believe 

are subject to forfeiture, a showing under Monsanto or Unimex is not required. The Supreme Court 

has made clear that where untainted funds are concerned – even funds that might be deemed 

“substitute assets” following a conviction – the government cannot impose any restraints pretrial 

absent a showing of probable cause.20 While a defendant’s need for counsel is one factor the Court 

can consider in deciding whether to vacate a pretrial restraint, it is not an evidentiary burden that a 

defendant must clear to get judicial review where the assets at issue are legitimate and untainted, as 

is the case here. In Luis, the Supreme Court distinguished defendant Luis’ circumstances from 

those at issue in Monsanto and Caplin & Drysdale, noting that those cases involved the pretrial

restraint of tainted assets. 

Defendants’ urgent need for defense funds in the face of a second trial is one important

reason why they are bringing this motion now. Because the government has failed to allege 

sufficient evidence to show that it has probable cause to believe these four limited categories of 

600 (1989) and Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (1989) -- by emphasizing 

that in those cases the seizure of defendant’s assets before trial was permitted only because the 

government had probable cause to believe the property was proceeds of, or traceable to, a crime). 

19 See Luis, 136 S. Ct. at 1106-1107. In Monsanto, the Supreme Court held that a defendant 

was not entitled to unfreeze seized assets before a trial in order to pay for counsel, as long as the 

assets were seized pursuant to a finding of probable cause to believe the assets were 

forfeitable. Fed. Trade Comm’n v. Johnson, No. 210CV02203MMDGWF, 2015 WL 8751693, at *2 

(D. Nev. Dec. 14, 2015) (citing Monsanto, 491 U.S. at 615)). The Ninth Circuit has applied Monsanto 

while recognizing two exceptions to this rule -- defendants can access the assets held in receivership 

if the defendant can show (1) they have been deprived of counsel or (2) the government has 

engaged in “specific instances of abuse.” Id. (quoting United States v. Unimex, Inc., 991 F.2d 546, 

549-50 (9th Cir. 1993)). 

20 Kaley, 571 U.S. at 327. See Luis, 136 S. Ct. at 1091-92 (rejecting the contention that 

“property—whether tainted or untainted—is subject to pretrial restraint, so long as the property 

might someday be subject to forfeiture” and instead, finding that where the government cannot 

show probable cause to believe property is the proceeds of, or traceable to, a crime, the 

government may not restrain it pretrial). 

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assets will be subject to forfeiture upon conviction, it cannot continue to restrain those assets under 

any circumstance. The burden does not fall on Defendants to make a showing that they are entitled 

to judicial review. United States v. Cosme, 796 F.3d 226, 233-34 (2d Cir. 2015) (requiring a judicial 

finding of probable cause if a defendant protests restraints on his property and noting that “[t]he 

government’s switch from civil forfeiture to criminal forfeiture in this case does not immunize it 

from having to demonstrate probable cause”). 

B. The Government Cannot Trace the Four Asset Categories to Crimes Alleged 

in the Indictments and Therefore Lacks Probable Cause to Support Their 

Forfeiture. 

The Complaint articulates three theories of forfeiture. The first, under 18 U.S.C. § 

981(a)(1)(C), alleges that the defendant assets are subject to forfeiture because they “constitute, and 

are derived from, proceeds traceable to” alleged criminal activity. The second and third theories, 

under 18 U.S.C. § 981(a)(1)(A), seek forfeiture of property alleged to have been “involved in” 

money laundering. Complaint ¶¶ 145-47. None of these theories supports the restraint of the four 

asset categories at issue here.

1. “Proceeds Traceable to”

The government must, but cannot, demonstrate probable cause to believe Defendants’ 

assets are directly traceable to the criminal activity because they “constitute, and are derived from, 

proceeds traceable to” alleged criminal activity. $8,221,877.16 in United States Currency, 330 F.3d at 

158 (“under section 981, the government is required to trace the seized property directly to the 

offense giving rise to the forfeiture”) (emphasis added). Proceeds “traceable to” means property 

where the acquisition is attributable to the alleged criminal activity, rather than from money 

obtained from untainted sources. United States v. Bornfield, 145 F.3d 1123, 1135 (10th Cir. 1998). In 

other words, property one “would not have but for the criminal offense.” United States v. Grant, No. 

S4-05-CR-1192, 2008 WL 4376365, at *2 n.1 (S.D.N.Y. Sept. 25, 2008). Section 981(a)(1)(C) does 

not authorize the seizure and forfeiture of untainted funds solely because they have been 

commingled with proceeds.

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The government’s theory is simply that some deposits to certain bank accounts or some

assets can be traced to earnings from Backpage.com. The generalized averments in the Complaint, 

as well as the Versoza Affidavits, at most attempt to establish that some funds in certain bank 

accounts or some assets can be traced to earnings from Backpage.com generally. The government 

simply states that certain accounts have received or been maintained with funds “traceable to” the 

alleged illegal activity. See e.g., Versoza Affidavit, ¶¶ 9, 13. This argument is insufficient for the 

following reasons: 

First, the government has never alleged, and cannot truthfully allege, that all revenue from 

Backpage.com is traceable to alleged illegal conduct. At most the government has alleged that the 

proceeds from certain adult advertisements are criminal proceeds, so simply showing that certain 

proceeds are tied to Backpage.com generally does not establish that the proceeds are traceable to 

the alleged criminal activity. 

Second, while Defendants vehemently deny the allegations in this case, for purposes of 

restraint of assets, numerous courts have established that at least some of Backpage’s adult content 

is legal in the United States. See, e.g., Backpage.com LLC v. Dart, 807 F.3d 229, 231 (7th Cir. 2015) 

(“[N]ot all advertisements for sex are advertisements for illegal sex.”); Doe v. Backpage.com LLC, 104 

F. Supp. 3d 149, 156-57 (D. Mass. 2015), aff’d, 817 F.3d 12 (1st Cir. 2016) (“The existence of an 

escorts section in a classified ad service, whatever its social merits, is not illegal.”); Backpage.com, 

LLC v. McKenna, 881 F. Supp. 1262, 1282 (W.D. Wash. 2012) (escort ads have long been permitted 

and escort services are licensed and regulated in many states); Backpage.com, LLC v. Cooper, 939 F. 

Supp. 805, 816, 833-34 (D. Tenn. 2013) (ads on Backpage.com are protected speech under the 

First Amendment).

Third, the government does not even attempt to trace any of the four categories of seized 

assets to the alleged criminal wrongdoing that gave rise to the forfeiture. As such, the government 

fails to offer any facts that would tend to show that these assets were derived from the criminal 

activity alleged in the indictment. 

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a. VMG Depository Account Funds

The VMG Account did not contain any funds traceable to earnings from Backpage.com, 

let alone the allegedly illegal advertisements, and the government has failed to make any showing 

to the contrary. The VMG Account exclusively held loan proceeds from Medalist’s seller-financed 

sale of its print newspaper business and related rent. Therefore, the VMG Account in its entirety 

was untainted and the government failed to establish probable cause to believe it is subject to 

forfeiture. 

b. Loan Payments Tied to Sale of Backpage’s Foreign Operations 

The government is similarly unable to trace loan payments tied to the sale of Backpage’s 

foreign operations to the alleged illegal activity. See supra, Section I(B). Further, the Complaint 

does not allege forfeiture of these assets based on money laundering under section 981(a)(1)(A). 

See Complaint ¶ 239. Therefore, the loan payments related to the sale of Backpage’s foreign 

operations do not have the “requisite nexus to the [alleged criminal activity]” to be forfeitable 

because they are not in any way attributable to such activity. Bornfield, 145 F.3d at 1135. And to 

the extent that any such loan payments were commingled with funds from Backpage’s domestic 

operations, section 981 does not authorize seizure of untainted funds simply because they have 

been commingled with allegedly tainted funds. Id. 

c. Attorney Retainer Funds 

Similarly, a large part of the attorney retainers came from the overseas operations or 

overseas loan payments, and the government has no right to those seize these funds. The 

government has never filed a sworn, verified complaint supporting its belief that it can seize most 

of these funds in the nearly three years and counting that the government has held these attorney 

funds. To date, the government has failed to file any legal instrument that would authorize the 

continued restraint of these retainer accounts, and thus cannot hold these funds pretrial. Under 

these circumstances, the Court must order the government to return these funds to the Defendants. 

Cosme, 796 F.3d at 233-34.

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d. Non-Adult Advertising Proceeds

The government seized non-adult advertising proceeds from Defendants, their families, 

their company (Medalist), and their lawyers. Even assuming arguendo that some of Backpage.com’s 

revenue came from classified ads relating to unlawful activity, the entirety of the earnings from 

Backpage.com did not come from such activity. See supra, Section I(D).

First, the government has never proven that any, let alone all “adult advertisements” on 

Backpage.com were criminal. See Versoza Affidavit, ¶¶ 31-32 (“I believe that the majority of

Backpage ads that appear in the traditionally ‘adult’ categories ... are actually advertisements 

promoting sex trafficking or prostitution”) (emphasis added). In fact, numerous courts have 

established that at least some of Backpage’s adult content is legal in the United States. See supra, 

Section 2(B)(1). As such, the government has never contended, let alone shown, that all proceeds 

from adult advertisements on Backpage.com are criminal proceeds. 

Second, the government admits that a material percentage of Backpage’s revenues were 

generated from non-adult advertising (e.g., classified ads for cars, rentals, jobs, etc.), which the 

government does not contend, and cannot contend, was unlawful. See Complaint ¶ 107. At most, 

accounts containing assets related to Backpage.com’s advertisements may consist of some 

legitimate funds and some allegedly illegitimate funds. When an account has commingled funds, 

the value of the illicit proceeds deposited in that account is considered traceable to the crime, not 

the entire account. United States v. Cosme, No. 17-1759-CR(L), 2021 WL 2964322, at *3-4 (2d. Cir. 

July 15, 2021); see also United States v. $448,342.85, 969 F.2d 474, 476-77 (7th Cir. 1992) (holding 

that money seized from a bank account must be traceable to illegal activity to be subject to 

forfeiture, even if account previously contained proceeds of illegal activity); United States v.

Haleamau, 887 F. Supp. 2d 1051, 1057 (D. Haw. 2012) (explaining that in cases where funds subject 

to forfeiture are commingled with other property and cannot be divided without difficulty, courts 

within the Ninth Circuit have only ordered the forfeiture “of any other property of the defendant, 

up to the value of the property subject to forfeiture”). Because the government cannot seize 

substitute assets pre-trial, only the value of allegedly illicit proceeds deposited into the account that 

are traceable to the crime can be held. 

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2. Property “Involved In” Money Laundering 

When the government seeks to forfeit property on the ground that it was allegedly “involved 

in” money laundering under 18 U.S.C. §981(a)(1)(A), it must establish there is a “substantial 

connection” between the property subject to forfeiture and the underlying offense. 18 U.S.C. § 

983(c)(3). “[P]roperty ‘involved in’ an offense ‘include[s] the money or other property being 

laundered (the corpus), any commissions or fees paid to the launderer, and any property used to

facilitate the laundering offense.’” Bornfield, 145 F.3d at 1135 (quoting United States v. Tencer, 107 

F.3d 1120, 1134 (5th Cir. 1997)). These four categories of assets were not “involved in” money 

laundering. 

The commingling of tainted and untainted funds is not itself a basis for forfeiture. Where 

tainted and untainted funds are held in a financial account, without more, only the tainted funds 

are subject to forfeiture, and not the entire account. Bornfield, 145 F.3d at 1135 (“[T]he mere 

pooling or commingling of tainted and untainted funds in an account does not, without more, 

render the entire contents of the account subject to forfeiture”); $448,342.85, 969 F.2d at 476 (“An 

‘account’ is a name, a routing device like the address of a building; the money is the ‘property’. 

Once we distinguish the money from its container, it also follows that the presence of one illegal 

dollar in an account does not taint the rest—as if the dollar obtained from fraud were like a drop 

of ink falling into a glass of water.”); Tencer, 107 F.3d at 1134 (agreeing that merely pooling tainted 

and untainted funds in an account does not, without more, render that account subject to 

forfeiture); United States v. Seher, 562 F.3d 1344, 1368 (11th Cir. 2009) (“the pooling or commingling 

of tainted and untainted funds would not by itself render the entirety of an account subject to 

forfeiture”). 

To prove that property – in this case funds in bank accounts – is property “involved in” 

money laundering, the government must show that the property actually facilitated the alleged illegal 

activity, which requires “more than a mere showing that tainted and untainted funds were pooled 

together.” U.S. v. Approximately $620,349.85 U.S. Currency, No. 13-CV-3966-RJD-SMG, 2015 WL 

3604044, at *3 (E.D.N.Y. June 5, 2015). The government’s approach here is incompatible with 18 

U.S.C. § 984, which allows for the substitution of fungible property. United States v. All Funds, 832 

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F. Supp. 542, 561-62 (E.D.N.Y. 1992) (allowing the government to seize legitimate “facilitation 

money”-- the seizure of all monies in an account merely because one illicit transaction was 

negotiated through that account--would “completely . . . erode” Section 984’s one-year limitation 

on seizing funds in a commingled account) (emphasis added); United States v. $3,148,884.40 U.S. 

Currency, 76 F. Supp. 2d 1063, 1067-68 (C.D. Cal. 1999) (adopting the All Funds court’s conclusion 

that the “facilitation theory is incompatible” with Section 984). 

Here, the government offers no evidence suggesting that the legitimate, untainted assets at 

issue in this motion were commingled with any allegedly tainted funds to conceal the tainted funds, 

or that the assets were commingled to facilitate any alleged illegal activity. 

For example, the government seeks civil forfeiture of a wholly untainted VMG Account, 

containing only funds earned from print newspaper proceeds, on the specious theory that those 

funds were tainted by commingling with funds from Backpage and therefore constitute “property 

involved in money laundering.” But there is no evidence that anything other than untainted 

proceeds – loan payments from the sale of newspaper businesses and rent for the sublease of an 

office building – were deposited into the account. 

Similarly, the government offers no facts that the “commingling” of foreign loan payments 

with domestic funds, or the “commingling” of non-adult advertising revenue with adult advertising 

revenue, was done to facilitate illegal activity, including money laundering. The mere fact that 

Backpage used bank accounts to hold funds from various sources – as most businesses do – does 

not suggest that they did so to facilitate money laundering. As for the attorney retainer accounts, 

those accounts are currently being held by the government without any legal process whatsoever. 

But, in any case, a law firm’s receipt of untainted funds to pay for legal services cannot possibly be 

construed as a money laundering transaction. 

Therefore, the government has no reason believe that the assets will be subject to forfeiture 

and the assets must be released at this time. See United States v. Abhishek Krishnan's Real & Pers. Prop., 

469 F. Supp. 3d 481, 496 (E.D.N.C. 2020) (finding that because government did not allege 

legitimate funds were commingled with illegitimate funds to conceal illegitimate funds nor were 

funds pooled to facilitate money laundering scheme, the government overreached and claimants 

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were entitled to partial equitable relief).

C. The Court Can Order the Release of Four Limited Categories of Untainted 

Assets in the Interest of Justice.

The above-described four categories of untainted assets constitute a minor fraction of the 

total assets seized by the government in this matter and the minimum of what should be released 

at this time. Defendants’ inability to use their own untainted funds has severely handicapped their 

ability to effectively defend the criminal case for the past three-and-a-half-plus years when 

Defendants were faced with just one trial. Now, faced with a second trial because of the 

government’s misconduct, Defendants lack funds to pay the hard costs necessitated by a second 

trial, are unable to mount a constitutionally effective defense, and may lose their choice of counsel 

in violation of the Sixth Amendment. See Luis, 136 S. Ct. at 1088 (“[T]he pretrial restraint of 

legitimate, untainted assets needed to retain counsel of choice violates the Sixth Amendment. The 

nature and importance of the constitutional right taken together with the nature of the assets lead 

us to this conclusion.”). Such a deprivation is especially egregious given the prospect of another 

months-long trial due to a mistrial that resulted entirely from the government’s misconduct. See 

Docs. 1355, 1355-8. 

These assets are not “loot, contraband, or otherwise ‘tainted’” and, therefore, Defendants 

are not required to make a showing under Monsanto that they have been deprived of counsel or the 

government has engaged in specific instances of abuse in order seek the release of the four 

categories of funds. Luis, 136 S. Ct. at 1090; see also supra, Section II(A). By granting Defendants’ 

motion to release these assets, the Court will enable Defendants’ counsel to move forward without 

requiring the Court to evaluate the entire universe of seizures in this case. 

D. Defendants Are Entitled to Cost and Fee Reimbursement In Light of a 

Mistrial Caused by the Government.

A court order releasing funds would help ameliorate what the Supreme Court has described 

as the “grossly unfair” consequences of forcing a defendant to undergo a second trial. Arizona v. 

Washington, 434 U.S. 497, 503–04 (1978). This is a massively expensive case to defend.21 By seizing 

21 The indictment presents 100 counts. Each has unique evidence. The government has nearly 

80 witnesses and thousands of exhibits. The case involves experts, fourteen years of business 

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virtually all of Defendants’ assets – including over $10 million in attorney retainer funds from firms 

like Davis Wright Tremaine and Perkins Coie that could have been used to pay for the defense of 

this case – the government already hamstrung Defendants’ efforts to defend themselves. Defense 

counsel had to clear their calendars for September through December of this year just for the trial 

part of the case.22 Defendants and counsel incurred substantial costs and attorney’s fees,23

including securing a rental house to work out of for four months, transportation, transcripts, 

experts, jury consultant, and numerous other expenses. Defendants should not be forced to incur 

these costs and fees twice due to the government’s misconduct; seized funds should be released 

sufficient to permit continuity of counsel and for defendants to obtain effective assistance of 

counsel. 

IV. CONCLUSION

For the foregoing reasons, Defendants respectfully request this Court (1) partially vacate 

the seizure warrants to the extent they restrain funds tied to the VMG Account and the attorney 

retainer funds and (2) order the government to release any seized funds traceable to the foreign 

loan payments or non-adult advertising proceeds.

activity and correspondence to review, including an extensive history of moderation practices, a 

large volume of litigation documents and pre-litigation dealings with state and federal prosecutors, 

and years of communications with counsel.

22 Additionally, counsel were required to turn away other work during this time period and 

get other judges and opposing counsel to put off other trials and hearings, and will now have to 

forgo additional business during the second trial.

23 Much of this attorney time is unpaid as retainers for the four retained counsel ran dry at 

various points in time, with no funds left to conduct what would have been the remainder of the 

September trial, much less a whole new ramp of pre-trial and trial work for the possible February 

2022 trial.

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RESPECTFULLY SUBMITTED this 26th day of October 2021,

PROSKAUER ROSE LLP

s/ Seetha Ramachandran

Seetha Ramachandran

Asset Forfeiture Attorney for James Larkin

BIENERT KATZMAN LITTRELL 

WILLIAMS LLP

s/ Whitney Z. Bernstein

Thomas H. Bienert, Jr.

Whitney Z. Bernstein

Attorneys for James Larkin

Pursuant to the District’s Electronic Case Filing Administrative Policies and Procedures Manual (Oct. 2020) § 

II(C)(3), Whitney Z. Bernstein hereby attests that all other signatories listed, and on whose behalf this filing is 

submitted, concur in the filing’s content and have authorized its filing.

LIPSITZ GREEN SCIME CAMBRIA LLP

s/ Paul J. Cambria, Jr.

Paul J. Cambria, Jr.

Erin McCampbell Paris

Attorneys for Michael Lacey

FEDER LAW OFFICE PA

s/ Bruce Feder

Bruce Feder

Attorney for Scott Spear

BIRD MARELLA BOXER WOLPERT 

NESSIM DROOKS LINCENBERG AND 

RHOW PC

s/ Gary S. Lincenberg

Gary S. Lincenberg

Ariel A. Neuman

Gopi K. Panchapakesan

Attorneys for John Brunst

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CERTIFICATE OF SERVICE

CERTIFICATE OF SERVICE 

I hereby certify that on October 26, 2021, I electronically transmitted the attached 

document to the Clerk’s Office using the CM/ECF System for filing and transmittal of a Notice 

of Electronic Filing to the CM/ECF registrants who have entered their appearance as counsel of 

record. 

/s/ Toni Thomas 

Toni Thomas

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