This is the latest post in the Prenda Law saga.
More than three and a half years ago I started covering a copyright-troll firm called Prenda Law, which came to my attention because it was filing defamation suits against critics accusing it of wrongdoing. Rarely does the Streisand Effect so utterly annihilate a group of censorious miscreants.
Over the last three years, Prenda Law and its principals John Steele and Paul Hansmeier have met with ruin at the hands of federal courts across the country. Their scheme — to upload porn, track people downloading it from torrent sites, then engage in fraudulent and extortionate litigation against the downloaders — has been exposed. The story has involved spectacles like lawyers taking the Fifth rather than answer a judge's questions about their lawsuits, devastating sanctions orders quoting Star Trek and referring lawyers for federal criminal investigation, withering fire from federal appellate courts, and generally every bad thing that can happen to a lawyer happening to the bad men behind this case.
When people have asked me why these lawyers aren't in jail, I've answered that the wheels turn slowly.
But they turn.
Today federal agents arrested John Steele and Paul Hansmeier, the two lawyers most responsible for this nationwide debacle. They were arrested on a federal indictment brought by the U.S. Attorney for the District of Minnesota. An indictment is an accusation, not proof: it only signifies that the U.S. Attorney has persuaded a grand jury that there is probable cause, which is not one of the more difficult challenges anyone ever faced. But a federal indictment is a very grave development for any defendant. The feds' competitive advantage is their ability to pick and choose cases, to develop evidence and witnesses painstakingly over time, and to bring their case only after they've amassed what they see as overwhelming odds in their favor.
The indictment charges Hansmeier and Steele with a raft of federal crimes: conspiracy to commit mail and wire fraud, mail fraud, wire fraud, money laundering, and conspiracy to suborn perjury in federal court. As usual, if you count up the statutory maximum sentence for all of these crimes, you get a ridiculous number that bears no relation to the probable sentences they face if convicted. However, given the amounts discussed in the indictment, they are facing years in federal prison.
Having covered this story for almost four years, what's remarkable to me is how comprehensive the federal indictment is. It covers almost every sort of misconduct any judge or commentator has accused Steele and Hansmeier of committing in substantial detail. It therefore serves to demonstrate how broad and flexible federal criminal law is — how it can be brought to bear against a wide variety of conduct.
The story, as the indictment tells it, is this: Steele and Hansmeier used various entities, including Prenda Law, to commit fraud. The indictment mentions many entities familiar to followers of this story — AF Holdings, Ingenuity 13, Guava LLC, and so forth. These entities would appear in copyright cases as the nominal plaintiffs, but the indictment alleges they were actually owned and controlled entirely by Steele and Hansmeier to conduct their fraudulent scheme. According to the feds, Steele and Hansmeier uploaded their "clients'" pornographic movies to file-sharing websites intending to lure people into downloading them, then sued the people who downloaded for copyright infringement, concealing their role in uploading the movies. They used what the feds describe as "extortionate tactics" to coerce quick settlements, and dismissed cases when defendants fought back rather than risk discovery. When federal courts began limiting the number of people they could sue at once for porn copyright infringement, they changed tactics and began to file suits falsely asserting that their clients had been "hacked" and then using those allegations as a basis to subpoena ISPs for subscriber information. Eventually Steele and Hansmeier filmed their own porn to upload to support this scheme. When courts began to get suspicious, the indictment alleges that Steele and Hansmeier sent underlings to lie to courts, or even lied to courts themselves, to conceal the scheme. The indictment specifies 14 separate instances of perjury or lying to courts. This scheme, the feds claim, netted more than $6,000,000 in copyright settlements, of which $3,000,000 went to Steele and Hansmeier and only $1,000,000 went to sham "clients," with the rest consumed for expenses.
The feds apply these facts to the law deftly. They describe the entire thing as a conspiracy to defraud, which forms the first (and most flexible) count in the indictment. The indictment offers five counts of mail fraud tied to five settlement demand letters sent by the schemers. It offers 11 counts of wire fraud tied to uploadings of porn to file sharing site and processing of checks. That's the way mail and wire fraud works — every mailing or wire communication resulting from the scheme can be a separate count. The feds frame their conspiracy to commit money laundering charge on the theory that Steele and Hansmeier engaged in transactions (probably with the sham companies) designed to conceal that the money came from mail fraud and wire fraud. The conspiracy to commit perjury count is based on the theory that they agreed to send people across the country to lie to courts to protect their scheme. The indictment also seeks forfeiture of ill-gotten gains.
This is a devastating indictment. Its scope will make it extremely expensive and difficult to defend. The detail level suggests that the feds have amassed a vast amount of documentary evidence. Its reference to Prenda Law employees with initials like "M.L." and "P.H." strongly suggests that the feds have flipped some former employees, who are now testifying for the government.
Prenda fell years ago. But now doom has come for Steele and Hansmeier. Based on my observations throughout this case, it couldn't happen to more deserving criminals.
Steele and Hansmeier might have continued this scheme for much longer — and might have even gotten away with it — had they not gotten arrogant and vengeful. When criticized, rather than settling and dismissing some suits and moving on (the way practiced con men do), they were incensed, and decided to abuse the legal system even more by blitzing critics with multiple lawsuits. John Steele gleefully threatened opponents and Paul Hansmeier famously sneered at the defamation defendants "welcome to the big leagues." It was those actions that drew much more attention to their cases. Character is destiny. Not only are Steele and Hansmeier wanton crooks, they're spiteful, entitled, arrogant douches. That led to their downfall.
December 19 bail update: Paul Hansmeier made his first appearance in Minnesota District Court and was released on a $100,000 signature bond — that is, he was released on a promise to pay $100,000 if he fails to appear for trial or breaks terms of release.
That sounds fairly lenient, but bear in mind that under the Bail Reform Act bond is supposed to be set at the minimum necessary to make sure that the defendant doesn't flee and doesn't pose a danger to the community. White collar dudes — and particularly white white collar dudes — typically get pretty low bail in federal court.
John Steele was arrested in Florida. Here's the way it's supposed to work: if you get arrested on a federal warrant in a different district, you have a right to a hearing at which the feds have to show you're the same dude charged in the other district and that there's probable cause (which can be satisfied by an indictment, like they have here.) Steele — who said he would be representing himself — waived further proceedings, thus agreeing to go to Minnesota to appear, and was released immediately on a $100,000 signature bond and a promise to post an actual $100,000 bond (meaning he'll have to put up $10,0000). Again, that is not atypical.
If Steele represents himself in Minnesota, it will be spectacular.
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