Two lawyers who participated in an infamous scheme of copyright trolling have been indicted on federal fraud, perjury and money laundering charges.
John Steele of Florida and Paul Hansmeier of Minnesota are accused of orchestrating “an elaborate scheme to fraudulently obtain millions of dollars in copyright lawsuit settlements by deceiving state and federal courts throughout the country,” according to an indictment made public Friday.
The lawyers are alleged to have filmed pornographic movies and enticed people to download them illegally, then used phony copyright infringement allegations to “extort” millions of dollars in settlements.
The filing of “false and abusive copyright claims that threaten individuals and encourage fraudulent settlements is wrong and will not be tolerated,” Assistant Attorney General Leslie Caldwell said in a press release announcing the indictment.
U.S. District Judge Otis Wright of Los Angeles, who referred to the group as a “porno-trolling collective,” ripped the lawyers in a 2013 sanctions order while referring the case to federal authorities. The U.S. Court of Appeals for the Ninth Circuit affirmed that order in June, citing “cases around the country” in which Steele, Hansmeier and a third attorney, the now-deceased Paul Duffy, “were found contradicting themselves, evading questioning, and possibly committing identity theft and fraud on the courts.”
An attorney who represented Steele and Hansmeier in the Ninth Circuit litigation did not immediately respond to a voice message Friday afternoon.
The indictment, dated Wednesday but announced publicly Friday after Steele’s and Hansmeier’s reported arrests, alleges that the two set up a series of sham entities with names such as AF Holdings and Ingenuity 13 to hold copyrights to pornographic movies. Steele and Hansmeier allegedly filmed some of the movies themselves. The movies were then uploaded to file-sharing websites such as BitTorrent.
Working through legal entities such as the disbanded Prenda Law Inc., the attorneys filed “bogus” copyright infringement lawsuits in order to get discovery from ISPs about who had downloaded the movies. They then threatened those owners with outsized financial penalties and public shaming, “when, in fact and as defendants knew, they had uploaded to the BitTorrent website the very movie that they now threatened to sue the subscriber for downloading,” the indictment states.
It further alleges that Hansemeier and Steele directed a paralegal of their law firm to pose as the owner of AF Holdings, having him sign declarations and attend a deposition. Steele testified at a federal court hearing in Minnesota that the paralegal, who isn’t named in the indictment, controlled AF Holdings and Prenda Law. “During this hearing, Hansmeier (acting as an attorney for AF Holdings), asked questions of Steele and thereby suborned the perjury set forth above,” the indictment states.
When courts started getting wise to their operation, Steele and Hansmeier alleged that the sham entities they’d created had been hacked, even though some of them had no computers. A few litigation targets settled copyright allegations in exchange for agreeing to be sued for hacking, according to the indictment. Steele and Hansmeier allegedly used the hacking allegations to gain more discovery about other potential targets before dismissing claims against the “ruse” defendants.
The indictment charges conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, and conspiracy to commit and suborn perjury.
The FBI and IRS are investigating the case under the DOJ’s Computer Crime and Intellectual Property Section and Minnesota U.S. Attorney Andrew Luger’s office.
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