Feds charge porn-troll lawyers in major fraud, extortion case in Minneapolis

A Minnesota lawyer who has drawn scorn for his tactics in filing porn copyright lawsuits and disability litigation has been indicted alongside a longtime partner in a multimillion-fraud and extortion conspiracy that counted as its victims hundreds of people nationwide and the court system itself.

Authorities arrested Paul Hansmeier, 35, of Woodbury, and John L. Steele, 45, an attorney in Illinois who was a former classmate of Hansmeier's at the University of Minnesota Law School, shortly before U.S. Attorney Andrew Luger announced charges Friday morning. Hansmeier was arrested in the Twin Cities; Steele, who has lived off and on in Florida, was arrested in Fort Lauderdale.

They were charged Wednesday in an 18-count indictment with running a multimillion-dollar extortion fraud scheme between 2011 and 2014. The charges, unsealed Friday, include conspiracy to commit mail and wire fraud, conspiracy to commit and suborn perjury and conspiracy to launder money.

"In order to carry out the scheme, the defendants used sham entities to obtain copyrights to pornographic movies — some of which they filmed themselves — and then uploaded those movies to file-sharing websites in order to lure people to download the movies," the indictment says.

Judges nationwide openly criticized Hansmeier's tactics, including a federal judge in California who ordered monetary sanctions against him and associates at the defunct Chicago law firm, Prenda Law, in 2013. At a news conference Friday, Luger said the case required "special attention" because the defendants' scheme "casts doubt on the integrity of our profession."

"These lawsuits were a sham," Luger said. "In fact, the lawyers were effectively the clients and the lawyers had concocted the facts that gave rise to the very lawsuits that they filed — lawsuits that were nothing more than a shakedown."

Hansmeier and Steele collected about $6 million from legal settlements in copyright-infringement lawsuits they had filed against people who allegedly downloaded pornographic movies online — films to which the men's companies had ostensibly purchased or filed copyrights, the indictment says.

In an order awarding attorneys' fees, bonds and a punitive multiplier against Hansmeier and associates, U.S. District Judge Otis D. Wright in Los Angeles found that Prenda Law began its "copyright-enforcement crusade" in about 2010. It set up shell companies that bought copyrights to pornographic movies and made them available on online through file-sharing protocols like BitTorrent. Prenda Law, or a local attorney it hired, sometimes through Craigslist, would then file federal lawsuits against the "John Doe" internet addresses captured during the downloads of the films. They then sought to subpoena the internet Service Providers for the identity of the users.

They offered to "settle" the lawsuits for an average of about $4,000. Otherwise, they threatened public exposure and penalties under copyright laws of as much as $150,000.

"Think about how ingenious this scheme was," Luger said, pointing to a copy of one letter blown up on a large poster board. "It worked to the tune of millions of dollars, person after person, victim after victim who was extorted to make this payment in order to make the entire problem go away."

According to the indictment, Hansmeier and Steele — at times aided by others — traveled to pornographic film conventions around the country, contracted with actresses and produced multiple short pornographic films that they later used in the alleged scheme.

Luger said that once courts began to limit their ability for early discovery in some cases, Hansmeier and Steele filed other lawsuits on behalf of Guava LLC, falsely alleging that their client's computer systems had been hacked. They again used the discovery process to obtain IP subscriber information for users they had previously caught downloading the adult films.

The Ninth U.S. Circuit Court of Appeals upheld Wright's order in June, writing that he did not abuse his discretion by identifying Steele, Hansmeier and the late Paul Duffy of Chicago as responsible for the abusive litigation. Wright had also found that they stole the identity of Alan Cooper, who was a groundskeeper on Steele's cabin in Aitkin County, using a forged signature to hold him out to be an officer for one of the shell companies.

The controversies surrounding the porn trolling cases led Hansmeier to take up a new business strategy of suing mostly small businesses for allegedly failing to comply with the Americans with Disabilities Act accessibility rules. He filed more than 100 such lawsuits in Minnesota, reaping minor settlements from defendants who said it would cost too much to fight him in court. The practice led the Legislature last year to modify the laws authorizing what's come to be known as "drive-by" disability lawsuits.

Mitch Stoltz, senior staff attorney at the San Francisco-based Electronic Frontier Foundation, said that copyright-trolling suits filed in 2013 by attorneys like Steele and Hansmeier amounted to a third of all copyright infringement litigation nationwide that year.

"For a time, Mr. Steele and Mr. Hansmeier and their counterparts were the most prolific group that were abusing the judicial system with completely false or poorly justified suits to make a quick buck," Stoltz said.

The Minnesota Supreme Court suspended Hansmeier's law license in September over ethics violations related to the porn-trolling scheme and his attempts to deceive the courts. His wife, Padraigin Browne, picked up his pending disability access lawsuits and has since filed a number of her own using his former clients as plaintiffs. Hansmeier has been acting as her paralegal.

Hansmeier filed for personal bankruptcy protection in Minneapolis in July 2015 and sought to reorganize his debts, but the bankruptcy trustee accused Hansmeier of attempted fraud and the court converted the case to an involuntary liquidation, which remains pending.

Hansmeier was released from custody Friday. His attorney, Joe Friedberg, said he didn't yet know enough about the case and that he barely knew Hansmeier, whose father, Gordon Hansmeier, chairs the Seventh District Bar Association's Ethics Committee.

Among the conditions of Paul Hansmeier release was a stipulation forbidding the "unauthorized practice of law."

Stephen Montemayor • 612-673-1755