Backpage Exposed: Origins, Ownership, and Control Part II

In our last post we saw how the origins of the Backpage scheme were born out of the perceived threat to Village Voice Media’s business model made by Craigslist, which had just launched a ‘free classified ads’ section to their website. In response to this potential economic threat, Michael Lacey, James Larkin and Carl Ferrer created the entity known as Backpage

In 2010, however, Craiglist chose to shut down its “adult” section due to the prevalence of ads for prostitution and other illegal services. It was then Michael Lacey, James Larkin and their co-conspirators, sensing an opportunity, made an aggressive push for Backpage to capture Craiglist’s share of this market.

In one internal document, Larking commented:

 “Craigslist has folded . It is possible that this will mean a deluge of adult content ads for We have with the Village Voice probably the longest run of adult content advertising in the US and it is, like it or not, in our DNA.”

This push was successful. In internal documents, Backpage stated that it experienced “explosive growth” by “capitalizing on displaced Craigslist ad volume.” As a result Backpage’s annual profits grew to over $26 million in 2010, over $52 million in 2011, and over $78 million in 2012.

But of course, these figures dwarfed the profits that VVMH’s print publications were generating. In fact, Backpage became so profitable that the Lacey, Larkin et al decided to get rid of VVMH’s publishing business so they could focus on Backpage’s further development and expansion.

Accordingly, in or around November 2012, the Lacey and Larkin spun off VVMH’s print publications and began utilizing several new corporate entities, including Medalist Holdings, Inc. (“Medalist”), Dartmoor Holdings LLC (“Dartmoor”), and Camarillo Holdings, LLC (“Camarillo”), to serve as Backpage’s parent companies. Following these transactions, Lacey held an ownership interest in Medalist (and, therefore, in Backpage) of approximately 45%, Larkin held an ownership interest of approximately 43%, John “Jed” Brunst held an ownership interest of approximately 6%, and Scott Spear held an ownership interest of approximately 4%. 

Backpage’s annual profits continued to skyrocket during and after these changes. They grew to over $112 million in 2013 and over $134 million in 2014.  In or around April 2015, Lacey, Larkin, Spear, and Brunst purported to sell their ownership interests in Backpage and several related entities for around $600 million to various Dutch entities. These Dutch entities included Atlantische Bedrijven, C.V., which agreed to purchase Backpage’s U.S. operations for around $526 million, and UGC Tech Group C.V., which agreed to purchase Backpage’s overseas operations for around $77 million.

But all was not as it seemed.

In fact, documents submitted to the court reveal that these Dutch entities were secretly controlled by Backpage CEO Carl Ferrer., who borrowed most of the $600 million from entities controlled by the sellers to finance the purchase. Due to this financial arrangement, Lacey, Larkin, Spear, and Brunst retained a significant financial interest in Backpage after the transactions were completed.

As a result, we can say with full confidence that Lacey, Larkin, Spear and Brunst retained what prosecutors describe as “significant operational control” over Backpage following these clandestine transactions designed to throw investigators off their trail.

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