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UNITED STATES DISTRICT COURT

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UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

_________________

United States of America, )

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

Plaintiff, )

)

vs. ) Phoenix, Arizona

) November 2, 2023

Michael Lacey, et al. ) 10:03 a.m.

)

Defendants. )

_____________________________ )

BEFORE: THE HONORABLE DIANE J. HUMETEWA, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS

TRIAL - DAY 29 - AM SESSION

(IN-COURT HEARING)

Official Court Reporter:

Hilda Elizabeth Lopez, RMR, FCRR

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

401 West Washington Street, Spc 30

Phoenix, Arizona 85003-2151

(602) 322-7256

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: Mr. Kevin M. Rapp, Esq.

Mr. Peter S. Kozinets, Esq.

Mr. Andrew C. Stone, Esq.

Ms. Margaret Wu Perlmeter, Esq.

Mr. Daniel G. Boyle, Esq. (Los Angeles, CA)

40 North Central Avenue, Suite 1200

Phoenix, Arizona 85004

kevin.rapp@usdoj.gov

peter.kozinets@usdoj.gov

andrew.stone@usdoj.gov

margaret.perlmeter@usdoj.gov

daniel.boyle2@usdoj.gov

For the Government:

UNITED STATES DEPARTMENT OF JUSTICE

By: Mr. Austin Berry, Esq.

1301 New York Avenue, NW, 11th Floor

Washington, DC 20005

austin.berry2@usdoj.gov

For the Defendant Michael Lacey:

LIPSITZ GREEN SCIME CAMBRIA, L.L.P.

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

42 Delaware Avenue, Suite 120

Buffalo, NY 14202

pcambria@lglaw.com

For the Defendant Scott Spear:

FEDER LAW OFFICE, P.A.

By: Mr. Bruce S. Feder, Esq.

2930 East Camelback Road, Suite 160

Phoenix, AZ 85016

bf@federlawpa.com

- and -

KESSLER LAW OFFICE

By: Mr. Eric Walter Kessler, Esq.

6720 N. Scottsdale Road, Suite 210

Scottsdale, AZ 85253

eric.kesslerlaw@gmail.com

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For the Defendant John Brunst:

BIRD MARELLA BOXER WOLPERT NESSIM DROOKS

LINCENBERG & RHOW, P.C.

By: Mr. Gopi K. Panchapakesan, Esq. (Appears by Zoom)

Mr. Gary S. Lincenberg, Esq.

1875 Century Park E, Suite 2300

Los Angeles, CA 90067

gpanchapakesan@birdmarella.com

glincenberg@birdmarella.com

For the Defendant Andrew Padilla:

DAVID EISENBERG, P.L.C.

By: Mr. David S. Eisenberg, Esq.

3550 North Central Avenue, Suite 1155

Phoenix, AZ 85012

david@deisenbergplc.com

Also Present:

John Brunst and Scott Spear appear by telephone

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P R O C E E D I N G S

(Proceedings commence at 10:03 a.m.)

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

Before -- before we turn to the forfeiture proceeding, and I

note the -- we don't have Mr. Eisenberg or Ms. Bertrand, and

I'll make inquiry about that in a few minutes. We don't have

Mr. Spear either or Mr. Brunst, but I understand they are

present by telephone.

I wanted to go back to the motion that Mr., or the

objection, I should say, that Mr. Kessler raised at the end of

the government's rebuttal, and it was in relation to

Mr. Berry's statements about why not call other witnesses. And

I looked at the transcript, and the particular statement that

Mr. Berry made was, "First of all, why not call a couple of

employees that maybe you didn't throw $5,000 out? And two, why

not call employees that know something about you and your

company? He didn't," meaning Mr. Lacey. I'll take that issue

first, and that was what prompted Mr. Kessler's objection.

In looking at that statement, and I tried to find

other similar statements like that, and I did not find any, but

I'm guided by the Ninth Circuit case, U.S. vs. Cabrera, 201

F.3d 1243, and in that case it sets forward that a prosecutor's

comment on a defendant's failure to call a witness does not

shift the burden of proof and is, therefore, permissible, and

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so long as the prosecutor does not violate the defendant's

Fifth Amendment right by commenting on the defendant's failure

to testify. So in that regard, I do not find that Mr. Berry

crossed the line.

There was another statement that Mr. Kessler raised in

objection to, and it related to balancing the witnesses, and

Mr. Berry did indeed say, "Let's balance the defense witnesses

against the prosecution witnesses." And then he then goes

forward to describe Mr. Ferrer, Mr. Hyer, Mr. Adams, and the

quality, as he puts it, of their testimony and versus the

quality of the defense witnesses' testimony, including the

expert. And so in that regard there wasn't a burden shifting

in the Court's view, so I don't find that error occurred there.

And so I think I covered the crux of Mr. Kessler's

objection.

MR. FEDER: Judge, we just got the transcript, got the

transcript last night, and there's --

THE COURT: As did I.

MR. FEDER: -- another issue, which I think Mr. Berry

contends, and that is his commentary about the 50 ads that the

defendants do not have to basically be proven to have seen the

ads or known about the ads, which, I think is afoul on not only

on the instructions, but undermine all motions of knowledge,

knowledge and therefore intent. Give me a moment. Maybe

Mr. Kessler can find the page for you to look at, 'cause he was

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going in and out about the conspiracy charge, but he seemed to

indicate that as to the 50 distinct ads charged, I think that

the defendants didn't have to -- what page is this?

MR. STONE: I can short-circuit this, if you want.

MR. FEDER: It starts at page 59, 5-9. We're trying

to look at this on a cell phone, so...

MR. STONE: I would just stipulate that that is what

Mr. Berry said, and that has been our position the entire five

years of this case is that defendants do not need to have

direct knowledge of the 50 ads that are listed in the

indictment.

And the Court agrees in Doc 793, the order on the

Motion to Dismiss, Judge Brnovich went through the allegations

in the superseding indictment that never state that these

defendants saw or knew about these particular ads. Rather, it

was the policies and the implementation of those policies and

the management of the business that led to these 50 ads, these

sampling of ads that were chosen to be published. And Judge

Brnovich ruled, as did Your Honor in subsequent orders, that

the facts in the superseding indictment, if proven to be true,

allege that these defendants violated the Travel Act.

Defendants have now for five years continued to posit

that their clients needed to have knowledge of these ads,

otherwise they could not be found guilty, and that just isn't

the law of the case. This case is not about whether or not

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these defendants knew of these particular ads. It's about

everything that we've presented, which is these prostitution

marketing strategies in the first phase of the company, and it

is their maintenance of the website in the second phase, and it

will be up to the jury, based on these jury instructions, which

do not state that these defendants needed to have personal

knowledge of these ads, to determine whether the evidence at

trial proves that these individuals are guilty or not guilty.

And I have more to say, but I don't think I need to,

Your Honor, unless you have questions.

THE COURT: Well, again, here it's rather unfair for

me to make a ruling before I've seen the actual transcript

language that Mr. Berry used and the objections about them.

Though all defense counsel have had this ongoing agreement that

one objection made is an objection for all, I do not have the

presence of two defendants or two defense lawyers, and so to

the extent that they wish to make a similar or adjacent

objection, I think we should permit them to do so.

But at this juncture, what I will say is the jury has

been instructed on how to apply the evidence and testimony to

the particular ads in question, direct and circumstantial

evidence, and so the jury has been so instructed.

And so beyond that, that's all I'll say because I do

want to see if Mr. Eisenberg, Ms. Bertrand wish to join in or

make an additional argument, and then we'll proceed further.

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Let me turn now to the issue of forfeiture. I thought

frankly this was going to be a cut and dry issue. I only asked

you to brief the question about whether or not you thought the

defendants were entitled to a jury determination of the

forfeiture allegations, but I want to put a couple of things

before you because I don't think this is a cut and dry issue,

and I understand Mr. Panchapakesan is taking the bulk of this

issue for the defendants.

So the superseding indictment alleges a forfeiture

allegation, a forfeiture Allegation 1 under 18 U.S.C.

981(a)(1)(C) and 28 U.S.C. 2461(c). Now, 981 is a civil

forfeiture provision, and it essentially refers to any

property, real or personal, derived from proceeds traceable to

a violation. Now, 2461(c) basically states that if a person is

charged in a criminal case for which the civil or criminal

forfeiture of property is authorized, the government may

include notice of the forfeiture in the indictment or

information pursuant to the Federal Rules of Criminal

Procedure. And if the defendants are convicted of the offense

giving rise to the forfeiture, the Court shall order the

forfeiture of the property as part of the sentence in the

criminal case.

There's a distinction, though, in the superseding

indictment because Allegation 1 is to Counts 2 through 51, and

Allegation 2 only is filed under 981(C), excuse me,

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981(a)(1)(C), which is the civil forfeiture proceeding. And

then when you look at the rule on criminal forfeiture, it

basically states that as soon as practical after a verdict of

finding of guilty on any count in which a forfeiture is sought,

the Court must determine what property is subject to

forfeiture, and nowhere in the rule does it say that it is a

jury determination.

It also goes on to say that the Court must determine

the nexus between the property and the offense, and the amount

of money the defendants must pay.

Now, here it is true that the government submitted a

jury instruction, and I have those instructions on, I believe

it was August the 18th. I have, by the way, never seen an

opposing motion by the defendants or a separately filed

defendants' list of instructions. I don't know if silence

means you agree with what was proposed by the government, and I

will hear that in a moment.

So it was only last week toward the end of the week

that I was informed by the government that the defendants

wished to have the jury determine forfeiture. As we sit here

today there is no special verdict form. And indeed, the jury

instructions that the government has proffered are incomplete.

They are not perfected.

And I go back to the conflicting law, which really

begins in Phillips, and it seems to indicate the treatment, the

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different treatment of property versus financial assets. It

seems clear to me that the case law at least governs that the

property determination of whether or not that's forfeitable is

the jury determination, whereas I believe it gives the Court

the ability to determine the financial assets.

So I have a couple of questions I want to ask. Let me

start with the government. So why the two distinctions in the

two forfeiture allegations? And I note, property, substantial

property and assets are listed under both, so why the

distinction?

MR. BOYLE: Yes, Your Honor. The distinction is

because under the money laundering statute we alleged

forfeiture under 982(a)(1) for money laundering property.

Under for the Travel Act property, we've alleged forfeiture

under 981, and the functional reason for that is it's a broader

forfeiture statute, Your Honor, and 981(a)(1)(C) includes any

proceeds of a violation of the Travel Act or a conspiracy to

commit the same.

And as the Court noted, under 2461 where civil

forfeiture would be appropriate or permissible, that forfeiture

under such a statute can be included in a criminal indictment.

I'd also note for the Court, we did file Supplemental Jury

Instructions and a Forfeiture Special Verdict Form last night.

I apologize for filing them late last night, Your Honor, and I

concede --

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THE COURT: Let me just say, it's astonishing to me

the type of delay that has gone on in this case. You've had it

for, what, since 2018, and you're only now telling me last

night you filed these new instructions and the special verdict

form?

MR. BOYLE: As the Court noted, Your Honor, we filed

instructions some months ago. Last night we filed updated

instructions. And I concede, Your Honor, we would have to

conform them again because we have written them as if all

defendants are convicted on all counts, and we simply don't

know if any defendants will be convicted, if there will be

partial convictions. They would have to be conformed after any

verdict. What we've attempted to do is provide the best

versions we can now, which we can then conform once we know

what the jury's verdict look like. I can concede, they can't

be complete until after a verdict comes back, Your Honor.

THE COURT: Did you share those with the defense

counsel last night too?

MR. BOYLE: Yes, we did, Your Honor. Defense counsel

has had our earlier version from when we filed it, and we

shared the versions that we filed last night with defense

counsel, Your Honor.

I understand the Court's frustration, Your Honor. The

government --

THE COURT: No, you really don't. You truly don't.

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MR. BOYLE: My apologies, Your Honor.

THE COURT: It's poor practice on all levels. Notice

to the opposing counsel, their clients, to the Court, it's

beyond me. I don't know what causes this, but when you have

these types of mistakes, they create extra work for people when

we have all of these moving parts. It's just -- it's beyond

me. I don't -- I frankly am at a loss for words.

MR. BOYLE: Your Honor, I don't know that -- well, the

government is not seeking to retain the jury. We only found

out from the defense they were seeking to retain the jury last

week --

THE COURT: Let me make my inquiry.

MR. BOYLE: Understood, Your Honor.

THE COURT: Mr. Stone last week indicated that there

were two witnesses that the government intended to call in the

forfeiture case. Were those two witnesses on the original

witness list that was vetted to this jury?

MR. BOYLE: Yes, Your Honor, and they have already

testified once. That would be Mr. Ferrer and former Agent Quoc

Thai. I expect their testimony would go no more than

90 minutes combined, most likely less, and we have --

THE COURT: For the government.

MR. BOYLE: I can't speak to any cross-examination.

We have disclosed those two witnesses to the defense.

THE COURT: Well, and here too, I will throw this out

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to you, the jury was screened not as Ms. Bertrand thought

yesterday, but they are only screened for their ability through

the 9th, and so what happens when we get toward that date and

they maybe have arrived at some sort of verdict, or maybe not,

what do we do in that circumstance?

MR. BOYLE: As to guilt, I would defer to Mr. Stone,

but if the question is asked of holding them for forfeiture,

the government's position is that the defendants do have a

statutory right to retain the jury. If the jury loses a

quorum, there is case law saying the Court could request or

empanel a new jury, and we would have to present evidence to

that new jury. That's obviously not our preference and that's

why we will attempt to move as expeditiously as possible if the

defendants continue to retain the jury.

THE COURT: All right. Let me hear from

Mr. Panchapakesan.

MR. PANCHAPAKESAN: Good morning, Your Honor,

Gopi Panchapakesan for the --

THE COURT: I frankly don't know where to look. I am

looking at -- okay. Let me make sure that I'm looking at you.

MR. PANCHAPAKESAN: So my understanding, a few points,

one is under Rule 32.2(B)(5)(A), the timing on making the

election, as I understand it for a jury in connection with a

forfeiture, would have to be done prior to jury deliberating as

opposed to some earlier point.

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THE REPORTER: Not hearing through my earpiece.

THE COURT: We're trying to accommodate our court

reporter. So standby one second. Test. Say "test,"

Mr. Panchapakesan.

MR. PANCHAPAKESAN: Testing.

THE REPORTER: It's still not coming out really clear.

COURTROOM DEPUTY: Can you speak again,

Mr. Panchapakesan?

MR. PANCHAPAKESAN: Testing. Yes. Thank you.

THE COURT: We're good.

MR. PANCHAPAKESAN: Okay. All right. So Your Honor,

I will sort of take the Court's question one by one. First, in

connection with the election of a jury on the forfeiture phase,

in my opinion is under Rule 32.2(B)(5)(A), that election is

typically made towards right before the jury deliberates. And

so I think it was Mr. Stone or Mr. Berry had asked us, I think

this was last week or the week before, and that's when we made

the election, the government, the Court, that we intended to

proceed by jury as to the forfeiture phase.

Second is, you know, as to this issue of jury

instruction and verdict form, we spoke to Mr. Boyle about this

earlier in the week. The government indicated that they intend

to resubmit a revised instructions and a verdict form, which

they did last night. We asked for a word count, which the

government provided to us, so we intend to submit some

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objection and redline the instructions, and we can do that, you

know, as soon as the Court wants that to be done.

And in terms of the witnesses and exhibits, my

understanding is the government has two witnesses. I think

they have an additional sort of tracing exhibits, or the charts

that Mr. Thai used during his testimony, but these are a

different set, I think, that tie some of the counts the

government is seeking to forfeit. We received that, I think

yesterday, and I am not aware of any other exhibits the

government intends to use. That's what we believe and

provided.

In terms of the jury and them being time qualified,

there is a couple of potential options. I think one is, you

know, the Court can make an inquiry as to whether and to what

extent any of the jurors have the ability to stay longer. I

think, you know, we need to be cautious about how and when and

how we make that inquiry. I don't know that we -- at least as

far as the defense is concerned, we wouldn't want to signal

that there is potential forfeiture because I think that might

imply guilt, and it may potentially incentivize them to rush

deliberations, but I would defer to the Court in terms of

how -- if we make an inquiry, how we do so.

The other potential option if less than a quorum of

the jurors are available, then I think the defense would have

to come to a decision as to whether we're willing to stipulate

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to a smaller jury. I haven't asked my colleagues about that,

but that would be another option in terms of keeping the jury.

THE COURT: Have either of you contemplated

bifurcating the property from the assets? Because it seems to

me that at least in the first instance the property question is

a jury question. Ultimately my understanding of the law is

that this court, assuming that there are properties to be

forfeited, has to then make the determination relative to any

third-party interests that may arise, but it seems very clear

with regard to the statute that the, at least the assets, the

financial proceeds, should be a court determination, and it

might be a little bit more manageable in terms of the jury's

time and their ability to deliberate on what are at least 26

listed separate properties.

MR. BOYLE: So we are, and I apologize for the recent

filing of our Proposed Special Verdict Form. We've only

identified about 40 items of what we call specific property.

That's a combination of, I think, three or maybe five or six

real properties, and the rest are financial accounts. However,

our read of Rule 32.2, Your Honor, is that while the Court does

have the decision as to a money judgment, the seizure of a

specific asset as in the contents of an account would fall

within the provision for specific property where the defendant

does have a right to request to retain the jury solely to

determine that limited question of nexus.

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Ultimately, the question of forfeiture would be a

question for the Court because as the Court correctly notes,

the Court has to conduct an inquiry to determine if there are

third-party interests, but that initial nexus question would be

a question for the jury, Your Honor, if the defendants so

request.

THE COURT: So what I hear you saying, and you can

correct me if I'm wrong, rather than the 26 properties and the

268 assets, you only have 40 total.

MR. BOYLE: Correct, Your Honor, and a number of those

are related to each other, so they are similar to one asset in

terms of the time it would take to present them.

THE COURT: Is that your understanding,

Mr. Panchapakesan?

MR. PANCHAPAKESAN: That's my understanding based on,

you know, I believe the government submitted a proposed verdict

form last night, and so I take it that the assets they are

seeking to forfeit, those are the ones that are listed on the

verdict form. You know, the one place where I think I have a

slight disagreement, maybe with Mr. Boyle, and this is

something we can brief, we just received the verdict form last

night, is I think as to financial accounts, for example,

because the rules require tracing, for example, 18 U.S.C. 981

concerns proceeds derived from a violation of the Travel Act or

a conspiracy to violate the Travel Act, is we think the jury

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also ought to determine the extent to which are the amounts

that ought to be forfeited. Because I think, I think the risk

we run is, look, our view is that this case concerns 50

advertisements. That's what the prior Court said. The Court's

jury instructions concerning the conspiracy counts are tied to

Counts 2 through 51, so we run the risk of forfeiting an entire

bank account with several million dollars when let's say there

is only a conviction on the Travel Act count, not traceable,

with minimal. So I think we want to avoid a situation where by

virtue of some jury finding the entire account is forfeited

when there is no showing of tracing.

I am aware of prior cases where, you know, a verdict

form in a situation like this is included not just where

there's nexus, but what is the amount to be forfeited.

MR. BOYLE: With respect to the number of assets, Your

Honor, I can explain. The reason we have a much smaller subset

here, once the defendants elected to retain the jury, we made a

decision, a tactical decision, instead of trying to put all 400

of those assets and frankly using too much of the jury's time,

a lot of those assets were also in the civil forfeiture case or

they have already been surrendered by Backpage in that case.

So for all those assets where we can resolve them in the civil

case or the ancillary petitions, we've left those assets there.

So we've tried to limit it down to a fairly manageable number

for the sake of the jury's time, Your Honor.

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THE COURT: Well, I have yet -- I have just been

handed your filing, so I have yet to look at it. The

defendants are entitled to make their objections known.

I frankly think that it is a substantial ask for this

Court to have this jury make this determination. I don't know

how many of you pay attention to this jury; I do. They

appeared very overwhelmed by the jury instructions as they are,

and so they are taking their obligation seriously. That's what

that tells me. They have a heavy lift in front of them. And

then to have them deliberate on the matter, try to come to some

agreement and then to -- if they end up convicting on one or

more counts, to have them then be told, "Well, you have to go

back and you have to do more work," is really in many ways

unfair.

And so I ask you to be prepared for the potential that

if we lose this jury, that you be ready to proceed with a Plan

B, whether that be calling in a new jury or agreeing, if we can

voir dire the existing jury to see whether or not some of them

can continue service for this purpose, whether you agree to

that. If there's no agreement to that, then the Plan B is

going to be empanelment immediately of a new jury.

And what that means is that you're going to have to

determine, because of the issues involved in the case and the

people that are involved in the case, we're going to have a

situation where undoubtedly the public who gets called in for

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service are going to be aware of the case.

MR. BOYLE: Absolutely, Your Honor.

THE COURT: And so there is all kinds of issues that

you to confront in that scenario.

MR. BOYLE: Absolutely, Your Honor. Very briefly, we

fully agree this is a big ask of the jury. If the defendants

do not elect to retain the jury, we are fully prepared to go

forward on the papers. However, at this point we are going to

be as expeditious as possible.

But to the Court's point about having a Plan B, we

absolutely do. There is case law showing that where a jury

hangs on forfeiture, the Court can empanel a new jury. There

is also case law saying that with respect to the Court's

concern about voir dire, it is not an issue that a juror in a

forfeiture phase is aware of a conviction because in a

forfeiture phase the jurors are always going to be aware that

the defendant was convicted.

So we are prepared for that Plan B, whether that's a

new jury or proceeding in some other fashion, and will be ready

for that if this jury loses a quorum and cannot continue their

service, Your Honor.

THE COURT: Well, I am talking about public awareness

of what is out there in the media. I am not talking about the

people coming in and being told that there was a prior

conviction. That's the distinction.

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MR. BOYLE: Yes, Your Honor. And of course, on voir

dire we would have to ensure that they could deliberate fairly

on that question.

THE COURT: So what I'm going to permit

Mr. Panchapakesan to do is by Monday morning you will have

given me whatever your redline is with regard to whatever the

government has provided. And you will then meet and confer and

come up with a procedure in the alternative if we lose the

jury, and do what you can to come to some agreement with regard

to that.

You can provide that to me by Tuesday, close of

business. That second part, I should say.

MR. BOYLE: Absolutely, Your Honor.

MR. PANCHAPAKESAN: Understood, Your Honor.

THE COURT: Is there anything more that any defense

counsel wishes to raise?

Mr. Cambria?

MR. CAMBRIA: No, Your Honor.

THE COURT: Mr. Feder?

MR. CAMBRIA: No, Your Honor.

MR. FEDER: No, thanks.

THE COURT: Anything further from you,

Mr. Panchapakesan?

MR. PANCHAPAKESAN: No, Your Honor.

THE COURT: All right. I'll look forward to receiving

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that, and I will look at your submissions.

And is there anything further?

MR. BOYLE: Nothing from the government, Your Honor.

THE COURT: I'll ask defense counsel who are present,

make an inquiry of Mr. Eisenberg and Ms. Bertrand if they wish

to join in on any objection that was raised here relating to

the jury charge regarding Travel Act, and if not, have them

just prepare to say so on the record on Tuesday.

MR. CAMBRIA: Yes. I believe everyone here joined in,

Your Honor, at this point.

THE COURT: All right. If there's nothing further,

then we are adjourned.

(Proceedings concluded at 10:40 a.m.)

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UNITED STATES DISTRICT COURT

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C E R T I F I C A T E

I, HILDA E. LOPEZ, 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 2nd day of November,

2023.

s/Hilda E. Lopez_______

HILDA E. LOPEZ, RMR, FCRR

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