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Monday, August 19, 2019

Lawyer in porn shakedown scheme sentenced to 5 years; Courts across country were scammed, including St. Clair

Federal Court

By Jonathan Bilyk | Jul 15, 2019


Steele

A former Chicago lawyer, one of the principals at Prenda Law and one of the masterminds behind a scheme to secure millions of dollars in settlements as part of a shakedown targeted at those downloading online porn, has been sentenced to five years in prison.

On July 9, John L. Steele, 48, now of Florida, and formerly of Chicago, was sentenced in federal court in Minnesota. He was also ordered to pay more than $1.5 million in restitution.

Steele had pleaded guilty in 2017 to federal charges of conspiracy to commit mail and wire fraud, and conspiracy to commit money laundering.

The prosecution had been handled by the Minnesota U.S. Attorney’s Office.

Steele’s sentencing comes about a month since his former Prenda Law partner Paul Hansmeier, of Minnesota, was also sentenced on the same charges. Hansmeier was sentenced to 14 years in prison.

While Minnesota U.S. Attorney Erica McDonald and others involved in the federal investigation and prosecution commented extensively following Hansmeier’s sentencing, they provided no comments in the release announcing Steele’s sentence.

According to a report published in the Minneapolis Star Tribune, Steele’s sentence was lessened by his willingness to cooperate fully with federal prosecutors after he was indicted in late 2016.

Steele has since been disbarred in Illinois, as well.

Before he was disbarred, Steele had also filed a flurry of lawsuits targeting small businesses over alleged violations of the Americans with Disabilities Act for allegedly not providing required access for those in wheelchairs.

The indictments and disciplinary actions arose out of the partners’ alleged actions through their various firms, most notably Prenda Law, to use the courts to allegedly orchestrate what federal prosecutors described as “an elaborate scheme to fraudulently obtain millions of dollars in copyright lawsuit settlements by deceiving state and federal courts throughout the country.”

According to court documents, Hansmeier and Steele, along with former law partner Paul Duffy, now deceased, launched a practice, centered on amassing relatively small settlements, amounting to a few thousand dollars per settlement, from an array of people around the country accused of illegally downloading copyrighted online pornographic videos.

Prosecutors said from 2011-2014, the Prenda partners created fictitious business entities to lay claim to the rights to the porn videos, while also creating and posting some of the content themselves to entrap those who later downloaded it from file-sharing sites.

The lawyers allegedly filed “bogus copyright lawsuits” to use the courts’ authority to learn the identities of those to whom they could send letters and other communications threatening “enormous financial penalties and public embarrassment” unless they agreed to pay off the Prenda lawyers.

Prosecutors said the Prenda lawyers also staged data breaches and recruited “ruse defendants” who would appear to settle quickly to sidestep courts’ attempts to shut down their suspect subpoena powers.

Prosecutors said Steele and Hansmeier collected about $3 million in settlements through the scheme.

Steele, Hansmeier and Duffy started filing copyright infringement suites against John Does in 2010, through the firm Steele Hansmeier in Chicago. They later changed the name to Prenda Law Inc., and began filing lawsuits in various courts, including St. Clair County Circuit Court.

Retired judge Michael O’Malley (now deceased) initially acted as Prenda's local counsel in St. Clair County; Kevin Hoerner, now an associate judge in St. Clair County, later acted as local counsel for Prenda.  

O’Malley moved for early discovery on behalf of one of Prenda's sham clients, Lightspeed Media, in December 2011, and presiding Judge Andrew Gleeson immediately granted it.

Gleeson held that plaintiffs could immediately serve subpoenas for names, addresses, telephone numbers and electronic mail addresses of John Does.  

Fifth District appellate judges reversed Gleeson in August 2012, finding he should have notified providers and held a hearing.  

Lightspeed then amended its complaint to add claims against AT&T, Comcast, and other providers, and the providers removed the action to federal court.  

At some point Hansmeier and Steele switched strategies, seeking the same information but alleging that subscribers hacked their system.  

Duffy filed a hacking suit against John Does and Comcast in St. Clair County in November 2012, on behalf of Guava LLC.  

John Doe stepped up and called it a thinly disguised copyright suit.  

John Doe moved for sanctions against Duffy and Hoerner, who had by then replaced O’Malley as local counsel.  

John Doe claimed that a notarized statement carried a bogus signature, and he connected Prenda to a fraudulent affidavit in a separate case.  

Hoerner subsequently withdrew from Prenda cases.  

Gleeson held a hearing in February 2013, and held that, “All Doe objections to the disclosure of identifying personal information are overruled and denied.”

“The identifying personal information shall be limited to cases involving Guava LLC, and shall be limited prospectively,” he wrote.

Hansmeier and Steele filed about 200 suits in all, involving more than 3,000 addresses, but their luck ran out.  

In May 2013, U. S. District Judge Otis Wright of Los Angeles sanctioned them for “brazen misconduct” and “relentless fraud.”

“Plaintiffs borrow the authority of the court to pressure settlement,” Wright wrote. 

He referred them to the Department of Justice for criminal investigation.  

District Judge John Darrah of Chicago quoted Wright a month later in denying a motion from Guava to expedite discovery. 

Other judges quickly turned against Hansmeier and Steele.  

Former U.S. District Judge Patrick Murphy of East St. Louis imposed sanctions in the Lightspeed case that Gleeson had handled in 2011.  

Fifth District appellate judges reversed Gleeson in the Guava case.  

Steele, who will begin serving his sentence in September, wrote to Minnesota federal Judge Joan N. Ericksen, saying he accepted responsibility for breaking the law. .

"As an attorney, I stood in federal courts and misled the judges I was arguing before," he wrote. "I wronged the judicial system that relies on scrupulous honesty from those who come before it. I harmed the legal profession by using my position to make money while misleading the courts. Specifically, I did not disclose my control of various companies I represented in cases before those courts. I knew that I exercised a great deal of control over the titular owners of those companies, and that they always followed my advice. I used self serving rationale to tell myself and others that technically my words were correct, despite knowing that I was not being forthright with the courts.

"My job as an attorney was to make sure the Court I was appearing before knew the truth regarding every case I brought before it, and I failed to do that. I look back on my reasoning at the time I was involved in federal litigation, and realized that without a moral compass to measure every action I took, I was just another hustler making money. I broke the law. And no matter how many excuses I made at the time, I knew it."

(Ann Maher contributed to this report). 

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