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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

United States of America,

Plaintiff,

v. 

Michael Lacey, et al.

Defendant.

No. CR-18-00422-001-PHX-SMB

ORDER 

The Court is in receipt of Defendants’ Motion in Limine to Preclude Certain Expert 

Testimony of Quoc Thai, (Doc. 909), to which the Government responded. (Doc. 952.) 

Defendants requested oral argument, but the Court declines to hold oral argument on the 

motion, finding that it is unnecessary. The Court has considered the pleadings and the 

applicable law and now issues the following ruling.

I. BACKGROUND

On July 25, 2018, a federal grand jury returned a one hundred count superseding 

indictment against several of the Defendants in this case alleging that the Defendants 

engaged in various crimes related to the operation of the website Backpage.com 

(“Backpage”), including conspiracy to violate the Travel Act, substantive Travel Act 

violations, conspiracy to commit money laundering, and substantive counts of money 

laundering. (Doc. 230.) Defendants bring this motion to move the Court in limine for an 

order precluding the admission of certain expert testimony from Special Agent Quoc Thai 

that the Government seeks to offer at trial. According to the Government’s Initial Expert 

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Disclosures, “Special Agent Thai will testify about (1) the financial structure of Backpage 

and its various corporate entities and (2) Backpage’s use of various payment systems to 

include virtual currency.” (Doc. 422 at 2.) With regard to the details of his testimony, the 

Government stated:

Special Agent Thai will explain the how the financial records show the flow 

of funds to and from various entities and financial institutions over the past 

decade, and how the funds were expended and transferred from Backpage 

accounts domestically and internationally. Special Agent Thai will also 

testify about: (1) centralized and decentralized virtual currencies (i.e., 

bitcoin, bitcoin cash); (2) the sale or exchange of virtual currencies; (3) the 

use of virtual currencies to pay for goods or services: (4) the anonymity the 

use of virtual currency provides; (5) the mechanics of transferring virtual 

currency from wallet to wallet or person to person; (6) the identification of 

origination and destination addresses through analysis of the blockchain 

code; (7) the price fluctuation over time of virtual currency, and the 

conversion and exchange of virtual currency to a “fiat money system” or “fiat 

currency system” or simply put, regular currency. Special Agent Thai will 

explain Backpage’s use of virtual currency and how the money flowed 

through its various domestic and international entities. Additionally, Special 

Agent Thai will explain Backpage’s use of third-party payment processors, 

who processed and received customer payments originating from virtual 

currency payments, credit card payments, check & money order payments, 

and gift card payments. Special Agent Thai will further explain how these 

payments flo [sic] from purchasers of Backpage advertisements and follow 

their flow to the accounts and purchase of assets by Backpage and Backpage 

officers and owners.

(Doc. 422 at 2-3.) While Defendants concede that Agent Thai “may serve as a summary 

witness with respect to the financial transactions underlying the indictment’s money 

laundering counts,” they argue the remainder of his testimony should be excluded. (Doc. 

909 at 1-2.)

Defendants argue Agent Thai’s testimony should be precluded for several reasons. 

First, Defendants argue that any of Agent Thai’s testimony “purporting to explain the 

motivation for a financial transaction, or opinion that the transactions are consistent with 

money laundering or other criminal conduct” should be excluded because such testimony 

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“impermissibly impinge[s] on the jury’s function to determine whether Defendants had the 

requisite state of mind.” (Id. at 1.) Second, Defendants argue Agent Thai’s testimony is 

“problematic” because he also served as a case agent in the investigation of the Defendants

and was present at the interviews of two cooperating witnesses. (Id. at 1-2.) Defendant 

suggests this fact means “Thai’s purported independent information is inextricably 

intertwined with information he learned from Ferrer and Hyer[,]” and that the effect of 

such testimony would circumvent the rules of hearsay. (Id. at 2.) Third, Defendants argue 

that the Court should categorically disallow expert testimony regarding virtual currency. 

(Id. at 7.) As grounds, Defendants argue that none of the indictment’s counts involve 

transactions of virtual currency, and that the “only possible purpose for such testimony 

would be to distinguish virtual currency from other forms of payment, so as to create the 

impermissible inference...that its use is associated with criminality.” (Id.) 

II. LEGAL STANDARD

“Under Rule 702, an expert may offer ‘scientific, technical, or other specialized 

knowledge’ if it ‘will assist the trier of fact to understand the evidence,’ provided the 

testimony rests on ‘sufficient facts or data’ and ‘reliable principles and methods,’ and ‘the 

witness has reliably applied the principles and methods to the facts of the case.’” Merritt 

v. Arizona, No. CV-17-04540-PHX-DGC, 2020 U.S. Dist. LEXIS 196989, at 4* (D. Ariz. 

Oct. 22, 2020) (quoting Fed. R. Evid. 702(a)-(d)). “The proponent of expert testimony has 

the ultimate burden of showing that the proposed testimony is admissible.” Id. (citing 

Cooper v. Brown, 510 F.3d 870, 942 (9th Cir. 2007); Lust v. Merrell Dow Pharms., Inc., 

89 F.3d 594, 598 (9th Cir. 1996)). The admissibility of expert testimony is a preliminary 

question the Court must decide under Federal Rule of Evidence 104(a); the Court must find 

the testimony admissible by a preponderance of the evidence. See Daubert v. Merrell Dow 

Pharms., Inc., 509 U.S. 579, 592 (1993); Bourjaily v. United States, 483 U.S. 171, 175-76 

(1987). In a criminal case, even when an expert is properly qualified to give an opinion, 

the expert “must not state an opinion about whether the defendant did or did not have a 

mental state or condition that constitutes an element of the crime charged or of a defense. 

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Those matters are for the trier of fact alone.” Fed. R. Evid. 704(b)

Like all other evidence, the admissibility of expert testimony must run the gamut 

of Rule 401 and Rule 403. See, e.g., United States v. Hankey, 203 F.3d 1160, 1167, 1171-

72 (9th Cir. 2000) (discussing Rule 401 and Rule 403 in conjunction with the admissibility 

of expert testimony). “Evidence may not be admitted at trial unless it is relevant, as defined 

by Rule 401 of the Federal Rules of Evidence.” United States v. Vellejo, 237 F.3d 1008, 

1015 (9th Cir. 2001). “Evidence is relevant if it has ‘any tendency to make the existence of 

any fact that is of consequence to the determination of the action more probable or less 

probable than it would be without the evidence.’” Id. (citing Fed. R. Evid. 401). “Relevance 

is not a strict test.” United States EEOC v. Placer ARC, 147 F. Supp. 3d 1053, 1062 (C.D. 

Cal. 2015) (quoting United States v. Miranda-Uriarte, 649 F.2d 1345, 1353 (9th Cir. 

1981)). “As the words ‘any tendency’ suggest, it is typically quite a ‘low bar to the 

admissibility of evidence.’” Id. (quoting Capitol Specialty Ins. Corp. v. Beach Eatery & 

Surf Bar, LLC, 36 F. Supp. 3d 1026, 1037 (E.D. Wash. 2014)). Further, under Rule 403 

“The court may exclude relevant evidence if its probative value is substantially outweighed 

by a danger of one or more of the following: unfair prejudice, confusing the issues, 

misleading the jury, undue delay, wasting time, or needlessly presenting cumulative 

evidence.” Fed. R. Evid. 403. When evidence is minimally relevant, it is likely to be 

minimally probative as well. United States v. Wiggan, 700 F.3d 1204, 1213 (9th Cir. 2012). 

Excluding otherwise relevant evidence under Rule 403 is “an extraordinary remedy to be 

used sparingly.” United States v. Mende, 43 F.3d 1298, 1302 (9th Cir. 1995) (quotation 

marks and citations omitted).

III. ANALYSIS

A. Agent Thai’s Opinions Supporting the Defendants’ Mental State

Defendants first argue that Agent Thai should not be permitted to testify regarding 

the purpose of various Backpage financial transactions. (Doc. 909 at 8.) That is, Defendants 

argue that Agent Thai should not be allowed to opine that certain transactions were 

“unusual,” or “consistent with money-laundering strategies,” and that Agent Thai should 

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not be allowed to affirmatively argue that a given transaction’s purpose was to “conceal” 

funds or “fool” credit card companies. (Id. at 8-9.) According to Defendants, such 

testimony would in essence offer an opinion on the ultimate issue of the Defendants’ 

mental state in making certain transactions. (Id. at 9); see also Fed. R. Evid. 704(b). 

Defendants further argue that such testimony would also not be based upon any expertise 

of the witness, but would in reality simply be Agent Thai’s recitation of information learned 

from the Government’s cooperating witnesses, a violation of the rule against hearsay. (Id.) 

Finally, in a single paragraph, Defendants allege that Agent Thai’s role as an IRS agent 

does not qualify him to opine on the purpose of the relevant transactions. (Id. at 10.) 

i. Rule 704(b): Opinion on an Ultimate Issue

Under Federal Rule of Evidence 704(b), “In a criminal case, an expert witness must 

not state an opinion about whether the defendant did or did not have a mental state or 

condition that constitutes an element of the crime charged or of a defense. Those matters 

are for the trier of fact alone.” However, “Rule 704(b) does not bar testimony supporting 

an inference or conclusion that a defendant does or does not have the requisite mental state, 

so long as the expert does not draw the ultimate inference or conclusion for the jury and 

the ultimate inference or conclusion does not necessarily follow from the testimony.”

United States v. Hayat, 710 F.3d 875, 901-02 (9th Cir. 2013) (quoting United States v. 

Younger, 398 F.3d 1179, 1189 (9th Cir. 2005)). For example, “[g]overnment experts may 

‘testify as to the general practices of criminals to establish the defendants' modus operandi’

which ‘helps the jury to understand complex criminal activities, and alerts it to the 

possibility that combinations of seemingly innocuous events may indicate criminal

behavior.’” United States v. Freeman, 498 F.3d 893, 906 (9th Cir. 2007) (quoting United 

States v. Valencia Amezcua, 278 F.3d 901, 908-09 (9th Cir. 2002)). In light of this, courts 

have routinely drawn the distinction between an expert’s testimony as what facts might 

generally infer about a typical person’s mental state, and testimony that directly opines 

about the mental state of the particular defendant on trial. See, e.g., United States v. 

Anchrum, 590 F.3d 795, 804-05 (9th Cir. 2009); Freeman, 498 F.3d at 906; Younger, 398 

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F.3d at 1189-90 ("the expert never directly commented on defendant's mental state, and 

the jury could have accepted his testimony and still infer that defendant was atypical."

(emphasis in original)); United States v. Gonzales, 307 F.3d 906, 911-12 (9th Cir. 2002) 

(“[the expert] never directly and unequivocally testified...that [the defendant] had the 

intent to distribute. Rather, he indicated his firm conviction that a "person" possessing the 

evidence in question would, in fact, possess the drugs for the purpose of distributing.”).

In light of the above, it is abundantly clear that in the Ninth Circuit Rule 704(b) does 

not prohibit a witness from testifying about the “unusual” nature of transactions or whether 

such transactions are “consistent with” money laundering or even from addressing the 

mental state of the typical person who makes similar hypothetical transactions as long as 

the expert witness does not cross the line into opining as to the actual mental state of the 

particular defendants on trial. See, e.g., Freeman, 498 F.3d at 906. The Court notes that 

Defendants are correct to assert that any such opinion must be based on Agent Thai’s 

objective expertise. Agent Thai may not simply recite hearsay statements of the 

Government’s cooperating witnesses.

ii. Hearsay Issue

The resolution of the issue above also disposes of Defendants’ hearsay objection. 

Defendants have argued that if Agent Thai testifies as to the Defendants’ actual state of 

mind or to the purpose for which Defendants made specific transactions, he will not be 

relying on his expertise or training, but will simply be parroting or repeating information 

he was told by the Government’s cooperating witnesses. As the Court has explained above,

Agent Thai will be constrained from opining directly on the actual mental state of these 

particular Defendants making these particular transactions. So, he will not be simply 

reciting the cooperating witnesses’ statements as to their mental state. 

iii. Rule 702: Qualification as an Expert

Finally, Defendants argue that Agent Thai is not qualified to speak as an expert in 

this case. Defendants argue that “nothing in Thai’s background suggests he would be 

qualified to determine the purpose of any of the relevant transactions.” (Doc. 909 at 10.)

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Defendants also argue that usually IRS agents provide expert testimony regarding tax 

implications of a defendant’s transactions which is not at issue here. (Id.) First, the Court 

notes that under Rule 702 the Court’s gatekeeping role examines whether this particular 

witness has the requisite expertise to testify on a given subject. So, any argument about 

what IRS agents are “usually” experts in does not control the Court’s analysis one way or 

another. Second, the Court notes that Agent Thai’s CV indicates he has been a member of 

the IRS Criminal Investigation (“IRS-CI”) unit for many years and has personally been 

involved in “numerous significant investigations” of “money laundering, ...cybercrime 

and digital currency cases.” (Doc. 422-3.) His credentials also seem to show he is an expert 

in virtual currency. (Id.) Further, it appears that since the Government’s original disclosure 

of Agent Thai’s CV in 2018, he has since taken on a position as a money laundering expert 

for USPIS. (Doc. 952 at 3.) As such, the Court will not preclude Agent Thai from testifying 

as an expert in this case. 

B. Expert Testimony Regarding Virtual Currency 

Defendants next argue that even if Agent Thai were allowed to give limited expert 

testimony, the Court should preclude any testimony on the subject of virtual currency. They 

argue that the issue of virtual currency is not connected to the case at all because “the 

indictment does not allege a scheme in which Defendants converted fiat money into virtual 

currency...in order to conceal the true source of funds [and] ...[n]one of the transactions 

that form the basis of the indictment’s money laundering counts involved virtual currency.”

(Doc. 909 at 6.) Defendants further allege the testimony is irrelevant because none of the 

Defendants are alleged to have personally owned any Bitcoin. (Id. at 7.) Finally, the 

Defendants allege that allowing expert testimony explaining virtual currency will compel 

the jury to infer that the use of online currency is uniquely tied to illegal transactions. (Id.) 

i. Relevance and Helpfulness 

As a threshold requirement of Rule 702, a witness is only allowed to testify as an 

expert if the Court determines “the expert’s...specialized knowledge will help the trier of 

fact to understand the evidence or to determine a fact at issue.” Fed. R. Evid. 702(a). In the 

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present case, the Government has charged the Defendants not only with specific counts on 

money laundering and violations of the Travel Act, but also with conspiracy to commit 

money laundering and conspiracy to violate the Travel Act by facilitating a business 

enterprise involving prostitution. (Doc. 230 at 49, 55-56.) 

The Superseding Indictment specifically alleges that when several major credit card

companies stopped doing business with the Defendants’, citing Defendants’ illegal 

activities, part of Defendants’ response was to utilize digital currency. (Doc. 230 at ¶ 182.)

The Superseding Indictment also alleges that Defendants’ specifically advised customers 

who posted ads that they could circumvent the credit card companies’ embargo by mailing

money orders and checks made out to a different company or by “posting with alternative 

payment methods such as Bitcoin.” (Id. at 185.) The Superseding Indictment further claims

that Backpage “furthered its money laundering efforts through the use of bitcoin processing 

companies,” and “utilized companies such as CoinBase, GoCoin, Paxful, Kraken, and 

Crypto Capital to receive payments from customers and/or route money through the 

accounts of related companies.” (Id. at 193.) Further, the government alleges there is 

documentary evidence of Defendants’ employees brainstorming ways to obfuscate

transactions in which their customers paid them to post advertisements by having 

customers “buy [Bitcoin] from our seller account . . . giving said bitcoin to our catch-all 

wallet elsewhere (instead of to user), simultaneously adding credits/purchasing paid ad or 

upsells.” (Id. at 194.) The government also alleges that post-2015, the use of Bitcoin and 

virtual currency became a key part of Backpage’s financial structure and business model 

with that section of its revenue expanding from approximately $35,000.00 a month in June 

of 2015 to at least $1,700,000.00 a month from December 2015 onward. (Doc. 952 at 6.) 

The evidence is likely directly relevant to the conspiracy charges in the case since it details 

alleged efforts by Defendants to obfuscate payment for illegal activities. 

In addition to the allegations in the Superseding Indictment, the Government 

anticipates that Agent Thai will testify as to the rapid growth Backpage experienced with 

Bitcoin exchangers. For example, between January 2015 and June 2015, records reflect 

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that Backpage had monthly transactions with a Bitcoin exchanger of between around 

$13,000 and $35,000. After the credit card companies stopped accepting charges on 

Backpage.com, however, the monthly amount dramatically increased. In July 2015, the 

monthly cash transactions on the same Bitcoin exchanger increased to around $234,000; in 

August 2015, it doubled to around $468,000. In October 2015, it increased to over $1.1 

million, and between December 2015 and May 2017, the monthly ranges were between 

$1.7 million and $3.5 million. In other words, starting in mid-2015, a significant part of 

Backpage’s revenue flowed through digital currency. Accordingly, without testimony 

related to digital currency, the jury would only hear part of the story about the company’s 

finances. A jury is entitled to know the circumstances and background of a criminal charge. 

United States v. Daly, 974 F.2d 1215, 1217 (9th Cir. 1992) (The jury “cannot be expected 

to make its decision in a void—without knowledge of the time, place, and circumstances 

of the acts which form the basis of the charge.”). Expert testimony regarding digital 

currency is relevant to the Government’s case against Defendants.

ii. Inference of Criminality

Defendants also argue that the Government’s expert testimony regarding virtual 

currency should be barred because it would impermissibly compel the inference that 

Defendants engaged in illegal conduct. As such, the Defendants argue the Government 

should not be allowed to present testimony that “the use of virtual currency has been found 

to be associated with money laundering, that there is a degree of anonymity associated with 

its use, that certain “darknet” websites engaged in its use, or...that no legitimate enterprise 

would accept its use.” (Doc. 909 at 13.) Defendants argue such statements will both 

impermissibly compel the jury to infer criminality based on mere usage of virtual currency, 

and further argues such testimony would have no factual basis. 

The Court will not categorically bar expert testimony on the subject of virtual 

currency. Defendants’ fears that certain statements or claims of the witness might have “no 

factual basis” are premature. The Court need simply note that it will require the testimony 

of the Government’s expert to be “expert testimony,” which will of course require it be 

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based on sufficient facts or data. Fed. R. Evid. 702(b). Defendants are welcome to object 

at trial to the specific statements they believe transgress the boundaries of Agent Thai’s

“expertise.”

iii. Prejudice

The Defendants finally argue that any testimony regarding virtual currency should 

be excluded under Federal Rule of Evidence 403. (Doc. 909 at 14.) Defendants’ argument 

is that any expert testimony on the subject of virtual currency has little probative value and 

would be substantially prejudicial. To show the prejudicial nature of such testimony,

Defendants assert that “one can easily imagine a situation in which a juror who has never 

heard of or used virtual currency wrongly concludes, based solely on the evidence of a 

Government expert, that the use of virtual currency is an indica of illegal conduct.” (Id.) 

Defendant’s further point out that the Government will not be offering expert testimony on 

credit card payments or any other form of payment other than virtual currency, and argue 

that “[t]herefore the only purpose of offering expert testimony on virtual currencies is to 

unfairly and inappropriately taint payments involving such currencies [by] implying they 

are obviously criminal.” (Id.)

There is one thing Defendants have pointed out that the Court does agree with, “one 

can easily imagine a situation in which a juror...has never heard of or used virtual 

currency[.]” (Id.) This of course supplies a very good reason why the average juror might 

benefit from an expert’s explanation of what virtual currency is and how it works. The 

same cannot reasonably be said for the use of credit cars, prepaid gift cards, or other forms 

of payment that are more commonly used by the average juror. As far as the probative 

value of testimony explaining virtual currency, the Court notes that while the Defendants 

argue virtual currency was never a large source of their revenue, the Government contests 

this claim. The Superseding Indictment contains numerous specific allegations regarding 

the Defendants’ use of virtual currency in the course of their conspiracy to violate the 

Travel Act and their conspiracy to commit money laundering. (Doc. 952 at 6-7.)

Defendants are also free to cross examen the witness about the legitimate and growing use 

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of virtual currency which would mitigate their concerns. Accordingly, the Court finds that 

the probative value of the proposed expert testimony is not substantially outweighed by its 

potential prejudicial effect. 

IV. CONCLUSION 

Accordingly,

IT IS ORDERED that Defendants’ Motion in Limine to Preclude Certain Expert 

Testimony of Quoc Thai, (Doc. 909), is denied. 

Dated this 28th day of May, 2021.

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