Backpage.com maintains ‘good standing’ as Delaware LLC

Despite its website being shut down by the federal government due to a criminal investigation, Backpage.com remains in “good standing” with Delaware as a limited liability company.

An April federal indictment in Arizona charges seven of the company’s executives with facilitating prostitution, money laundering and criminal conspiracy. And earlier this year, former chief executive officer Carl Ferrer pleaded guilty to charges of money laundering and conspiracy to facilitate prostitution.

But Backpage.com maintains its LLC status because it has renewed its annual registration fee and maintains a valid Delaware registered agent, said a spokesperson for the Department of State.

Under a new Delaware law, Attorney General Matt Denn’s office could file a court petition to get Backpage.com’s registration revoked. But Denn’s office is still reviewing the new statute and trying to determine when to use it, a spokesperson said.

Activist Nick Wasileski, president of the Delaware Coalition for Open Government, said the fact that Backpage.com is still in “good standing” surprises him.

“This is troubling on a couple levels,” he said. “Since our federal government shut this company down, how is it possible they can re-register?”

Delaware’s LLC laws allow the true owners of an LLC to remain shielded and serves as a major incentive for companies to set up in Delaware. The state has more than 800,000 LLCs, and last fiscal year received $273.8 million from taxes, penalties and interest from LLCs, the Delaware Department of State told WHYY this week.

However, Wasileski and other critics of Delaware’s LLC regulations argue that they also allow criminals to hide nefarious activities like money laundering, arms dealing, and drug and human trafficking.

This month Wasileski’s group and other civic organizations petitioned Denn, D-Delaware, who’s not seeking reelection this year, to appoint an independent counsel to study Delaware’s LLC laws, identify provisions that allow criminals to hide their activities and make recommendations for amendments.

Wasileski said he believes Backpage.com’s good standing is a perfect example of why an independent counsel is necessary.

Denn has not commented on the petition. Secretary of State Jeffrey Bullock believes the issue of beneficial ownership must be dealt with at the federal level, a spokesperson said.

Patty D’Angelo is a member of Zoë Ministries, an organization dedicated to eliminating sex trafficking in Delaware. She said the group was “disgusted and disappointed” in the state of Delaware when it learned of Backpage.com’s good standing.

“Backpage.com was shut down federally for illegal sex trafficking, including the trafficking of children, and why does Delaware continue to be complicit and allow them to be incorporated on any level?” D’Angelo said. “Isn’t there another way we can get $300?”

Bullock would not agree to an interview. A spokesperson for the Department of State, which oversees the Division of Corporations, issued a written statement that said the term “good standing” “assigns no value judgment to the activities of a particular business – and it’s not a stamp of approval or endorsement of the entity’s business practices.”

The statement added that neither state nor federal law empower the department to revoke a business entity’s “good standing” status due to controversy or its website being shut down.

Last month, however, Gov. John Carney signed legislation that permits the Attorney General to petition the Court of Chancery to cancel an LLC for engaging in bad activity.

When asked if Denn would seek to cancel Backpage.com’s LLC status, or that of any other LLC, a spokesperson said officials are still “researching under what circumstances and how it could be utilized.”

Other examples of criminal activity being linked to Delaware LLCs abound.

The indictment against former Trump campaign chair Paul Manafort stated nine Delaware business entities were used in the international money laundering and tax fraud scheme he’s charged with running.

The Mexican drug lord known as “El Chapo” allegedly used a Delaware LLC for his drug money.

And there also were reports this year that President Donald Trump’s former attorney Michael Cohen used a Delaware LLC to pay porn star Stormy Daniels to stay silent about her relationship with the president.