Attorneys Indicted for $6 Million Porn-Piracy Extortion Scam

By Michael GrossmanDecember 22, 2016Reading Time: 4 minutes

Ingenuity is by its nature the idea of approaching an issue in a novel manner. The ability to creatively solve problems is invaluable. To take a perpendicular approach to a matter that has stymied traditional methods is sometimes the only way to solve it. Unfortunately, people perceive "problems" differently; for instance, two attorneys recently decided that it was a "problem" that they weren't millionaires. Eschewing the grand American tradition of hauling themselves up to wealth and fame by their bootstraps, they elected to take a shorter, more ingenious, far more ethically-reprehensible route.

What Happened?

Attorneys Paul Hansmeier and John Steele, founders of the Chicago-based Prenda Law firm, had a problem: making money the traditional, legal way just wasn't fast enough. Tired of the grind, they chose to elevate their earning potential by questionable means. Having so decided, the pair of attorneys began fraudulently targeting internet users who violated copyright protections by illegally downloading pornographic movies.

That's right--the dynamic duo specifically targeted people who downloaded porn. According to the allegations against them, they are accused of acquiring the copyrights to several skin-flick titles through phony shell companies. They then uploaded copies of those movies to various file-sharing sites, like The Pirate Bay and TorrentSpy. When internet users downloaded those files, the attorneys would then file copyright infringement suits against them by isolating their IP addresses and using that to obtain the users' personal information from their service providers.

Having identified the transgressors, the lawyers would then notify them of the suit. They pressured the offenders to settle for a smaller amount, assuring them that the $4,000 cost would be greatly preferable to a $150,000 judgment against them. More than that, many users could not afford to defend themselves. That pressure is tantamount to extortion on the part of the lawyers. To further compound matters, Hansmeier and Steele used the early income from the extortionate settlements to produce more pornography, as it was no more prohibitively expensive than buying the rights to films made by other firms. Once the movies were made, they too were uploaded to file-sharing services, and the cycle repeated itself. From 2011 to 2014, the pair managed to obtain over $6 million from downloaders who were afraid of being "outed" and heavily fined for their online activities.

What Is Being Done About It?

The scam had several moving parts, each which had to be concealed from prying eyes. Hansmeier and Steele had to keep their names out of any part of the owned properties, lest there be an obvious conflict of interest. Production of the films was credited to the shell companies they established. The lawyers would also have needed to upload the content to the file-sharing sites from IP addresses that could not be traced back to them. Given the number of details to track, it seems almost inevitable that the operation would fall apart eventually, but they convinced a surprising number of people to pay up before they were caught. If we use the rough numbers cited above as a basis,

$6,000,000 extorted dollars total / $4,000 settlement per user = 1,500 users caught by the scam.

Unbeknownst to the people who fell victim to the "porn trolls" as they were called, simply disputing the claim might have been enough to get them out from under the specter of a lawsuit. After all, the pair couldn't risk their plot being discovered by actually going to trial. Unfortunately, the perceived power of the law worked to their advantage, as the threat of being sued for what is an illegal but fairly prosaic activity caused most people to eagerly agree to pay the lesser sum to the attorneys.

After their scam was exposed by the FBI and the IRS, the two attorneys have been federally indicted by the U.S. Department of Justice. The prosecutor, U.S. Attorney Andrew Luger, had the following to say about the fraudsters:

"The conduct of these defendants was outrageous--they used deceptive lawsuits and unsuspecting judges to extort millions from vulnerable defendants. Our courts are halls of justice where fairness and the rule of law triumph, and my office will use every available resource to stop corrupt lawyers."

They face 18 total charges, including "conspiracy to commit wire fraud and mail fraud, substantive wire fraud and mail fraud, concealment money laundering and conspiracy to commit and suborn perjury." Hansmeier's license to practice law in his home state of Minnesota has been suspended, while Steele faced sanctions by the Illinois Attorney Registration and Disciplinary Commission.

The Takeaway: What We Can Learn From This

Intellectual property law is complicated; with the advent of the Internet, the system by which one establishes ownership of a property and payment rendered for its use is hazier than it once was. Hansmeier and Steele manipulated it to obtain abnormal results. Before we extrapolate any "the system is broken" nonsense from that, though, it's worth keeping in mind that they broke several laws to get their filthy lucre. They didn't dance in some nebulous barely-legal area to conduct their business; they just broke a whole mess of rules to get rich, and they were caught doing it. We learn from this that justice will be served, and the legal system functions as intended. The criminals gamed the system for some time, but were discovered and punished.

In keeping with that theme of justice, though, it's important to note that file-sharing and torrenting are illegal in and of themselves. These lawyers were able to take action against downloaders because the system recognizes the right of a property owner to seek legal redress when that property is stolen, including instances of electronic piracy. Because the lawyers put the content up there with the express purpose of targeting downloaders, their circumstances don't fall within the course and scope of copyright law, but the principle behind their lawsuits is sound.

With that said, the behavior of these two criminals is not indicative of the legal profession as a whole--not even close. Hansmeier and Steele leveraged their knowledge of the law to break it. That is reprehensible behavior, and certainly doesn't do lawyers' reputation any favors. To offer some perspective, there likely will be examples like this in any profession--from police who accept bribes to doctors prescribing unnecessary medication for kickbacks from its manufacturers. Some people will make use of their training or position to manipulate others, but it would be highly cynical to ignore the forest for the trees and hold an entire profession responsible for the actions of individuals.

I don't care where anyone lands on who to blame for the emergence of piracy. Some say the entertainment industry is responsible for file-sharing because it has been inflexible about content pricing and delivery methods; others maintain that users are simply greedy and opportunistic, and will take what they want without paying if they think they can get away with it. Regardless of which camp you support, file sharing is against the law, and you play the odds every time you do it. The RIAA and the MPAA may not always catch you, but it only takes once.