Backpage CEO Pleads Guilty to Conspiracy, Money Laundering with Bitcoin

Former CEO Carl Ferrer of the now seized Backpage.com has plead guilty to conspiracy and money laundering according to court records.

On March 28th, 2018 former Backpage executives James Larkin, former owner Michael Lacey, COO Andrew Padill, and four others were also indicted on 93-counts.

In a plea agreement Ferrer admits he laundered money using industry exchange services including Coinbase, Kraken, and Paxful.

"I also conspired with other Backpage principals (including but not limited to M.L, J.L, S.S., J.B., and DH.) to engage in various money laundering offenses ... worked with my co-conspirators to find ways to fool credit card companies into believing that Backpage-associated charges were being incurred on different websites, to route Backpage-related payments and proceeds through bank accounts held in the name of seemingly unconnected entities ... and to use companies (including but not limited to Coinbase, GoCoin, Paxful, Kraken, and Capital) for similar purposes."

Backpage began accepting bitcoin, at one point exclusively, for ad placements on it's classified ads service which gave Paxful a boost when it first arrived on the industry scene in 2015 after Paxful engaged directly with Backpage to allow its users to send bitcoin directly to Backpage from Paxful and facilitated the process with online helpers to assist in the process and non-bank payment methods such as gift-cards and pre-paid debit cards.

Last Friday, Backpage.com and over a dozen variations of Backpage owned domains were all seized by authorities.

In the plea agreement Ferrer also admits he and other executives at the company knew that the advertisement were in fact for prostitution.

Shocker there.

Industry Effects

Paxful explains their realization of the problem for which their platform initially provided a solution in a medium post from 2016 and at one point were single highhandedly responsible for about 5% of all daily bitcoin transaction volume and whereas the platform is no longer centrally focused on Backpage, you can still locate Backpage help on the website.

Other platforms quickly jumped in after Paxful including WallofCoins, BitQuick, and even Circle at one point in addition to a dozen or more "backpage credit" websites that directly transmitted customer funds to backpage (platforms like Paxful or Circle did not transmit funds, the users transmitted funds themselves from their own wallet).

Up until Backpage was seized, this was a steady stream of bitcoin buyers for vendors some of which have reported up to a 50% decline in sales since the seize. These seem to be predominately some Paxful vendors and websites directly targeting backpage users with the aforementioned "backpage credit" services.

Additionally according to Ferrer's plea agreement, some of these same platforms are likely to see a decline in bitcoin purchasing opportunity whereas Backpage swapped their bitcoin for cash or bank transfers/wires in their apparent money laundering scheme.

Notably, all of the "backpage credit" websites we looked up were no longer functioning or all together shutdown.

To name a few:
https://buybpcredits.com/ (not operation)

https://bitcoin4backpage.com/default/buycredits (still some residue of what was once a site)

https://bitcoinsforbackpage.com/ (not operational)

https://backpagecredits.com/default/contact (not operational)

On a final note, whereas this is being touted as a victory by the Department of Justice and as far as human trafficking goes, most would agree, however, there are always other victims. According to media outlets, the demise of Backpage has been devastating for some, taking away their sole source of income to survive. 

Despite anyone's opinion of the trade or the legality of "sex workers" in most states in the Unites States being unfavorable, it's not illegal everywhere in the US nor is it illegal in the majority of North America for that matter. It's legal in Canada to sell sex (what Backpage advertisers were allegedly doing) and it's completely legal in Mexico as well as large portion of the world.   

This is not to condone nor condemn the practice, but to merely point out that there are many people affected in the actions of authorities who may have done more harm than good. Very much like the blockchain can actually be use to help law enforcement track illegal transactions as they otherwise could not do with cash, Backpage could have been a tool to help combat human trafficking being the largest online platform where this type of thing was present (according to authorities).

In fact, Backpage has reported hundreds of potential cases and indeed worked with authorities on this matter in the past. 

There's an article on the Daily Beast that discussed this very topic in great detail published in 2017 titled Backpage is Bad, Banning it Would Be Worse, the latter being the current reality where the ones authorities are attempting to stop have scattered to various places across the internet and dark web as a result of the shutdown and that .... may well have just made things much worse. 

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