Delaware AG Sues to Shut Down Four Companies Linked to Backpage.com Sex Trafficking

Matthew Denn, Attorney General of Delaware. Photo: Delaware Department of Justice

Delaware Attorney General Matt Denn has petitioned the Court of Chancery to shut down four Delaware limited liability companies linked to classified advertising website Backpage.com, saying the entities had been used to operate a sex trafficking conspiracy.

The complaint, filed Nov. 19, asked the court to cancel the companies' certificates of formation using a new provision of Delaware's Limited Liability Company Act, which allows the attorney general to seek the dissolution of LLCs that abuse their "powers, privileges or existence" under state law.

Backpage.com was seized by federal law enforcement in April, and the men who created it are currently under federal indictment, according to the complaint. The company's CEO, Carl Ferrer, has pleaded guilty to conspiracy, prostitution and money laundering charges. Meanwhile, three other LLCs—Website Technologies, Posting Solutions and Amstel River Holdings—have pleaded guilty to conspiracy to commit money laundering and forfeited all corporate assets related to the scheme.

According to the filing, the LLCs had generated "hundreds of millions" of dollars in revenue from advertisements for illegal "adult" and "escort" services on Backpage.com and engaged in a "company-wide culture" of hiding the true nature of services the site offered, including the sex trafficking of minors.

"Backpage.com has admitted to facts conclusively demonstrating that it has engaged in acts of fraud, immorality, or violations of statutory law in connection with its operations," attorneys from the Delaware Department of Justice wrote in the 15-page complaint.

"Backpage.com has abused the powers, privileges, and existence granted to it as a Delaware limited liability company, as a result of which it should be denied the rights and privileges that also come with status as a Delaware limited liability company, and its certificate of formation should therefore be canceled."

In June, the General Assembly unanimously passed Denn-backed SB 183, which amended the state's corporate law and authorized the attorney general's office to seek a court order requiring the Delaware Department of State to dissolve certain LLCs registered in the First State. Gov. John Carney signed the bill into law July 23.

According to a State Department spokesman, Denn's lawsuit was the first to invoke the new avenue for enforcement under the LLC Act. Prior to the law's passage, both Denn and Secretary of State Jeffrey W. Bullock lacked any legal authority to shut down the entities because they had paid their annual franchise tax and have no physical presence in Delaware.

A spokesman for Denn on Monday referred a request for comment to Bullock's office. In a prepared statement, Bullock said the lawsuit would send a "strong message" to anyone who tried to use a Delaware entity for illegal purposes.

"Entities used to further the sort of heinous criminal activities that this website facilitated have no right to a legal home in Delaware or anywhere else in the United States," he said.

The filing comes after Delaware has in recent years found itself at the center of a national conversation over the secrecy surrounding the creation of LLCs.

The 2016 release of the Panama Papers disclosed how the wealthy secretly stored assets in offshore shell companies formed in Delaware. In January, The Wall Street Journal reported that a personal lawyer for President Donald Trump used a private Delaware firm to enable a payment to adult-film star Stephanie Clifford in order to stop her from talking about a supposed 2006 sexual encounter with Trump.

Last October, U.S. prosecutors alleged in a federal grand jury indictment that former Trump campaign chairman Paul Manafort and Rick Gates, a former official in the Trump campaign, used nine Delaware LLCs to shield from U.S. authorities millions of dollars in payments from Ukraine. Delaware LLCs have also been linked to separate schemes by Jack Abramoff, a disgraced lobbyist, and Russian arms dealer Viktor Bout, to launder money, according to media reports.

The case, captioned Denn v. Backpage.com, has been assigned to Chancellor Andre G. Bouchard.