How Goldman Sachs Invested in Child Sex Trafficking

Investment bank Goldman Sachs isn't one of America's most popular institutions right now—given the country's anti-Wall Street sentiment and their participation in the near total collapse of the global economy. And now things are about to get a teensy bit worse for them. After a little digging, Nick Kristof of the New York Times has uncovered that Goldman Sachs is a stakeholder in the company which runs Backpage.com, a website he calls "the biggest forum for sex trafficking of under-age girls in the United States." Oh no. Calling clients Muppets is bad, but facilitating the rape of children is about as low as it gets.

So, let's look at the grisly details. Backpage.com is owned by a company called Village Voice Media, which also owns the famous Village Voice newspaper. It was never previously clear who exactly the owners of Village Voice Media are until Kristof went prying and found out that, in fact, it is owned by private equity financiers, one of which is Goldman Sachs. They have a 16 percent stake, so they don't own the whole thing, but that's not exactly nothing either. You may not be surprised to hear that once the New York Times came a-callin', Goldman panicked and began trying to dump its shares. Classy. By Friday afternoon, they told Kristof they'd "just signed an agreement to sell its stake to management." Well, how nice for them. Good of them to unload their shares of a company that enables child sex-trafficking to someone else rather than destroying said sex-trafficking operation, you know, for the good of the world. Har.

While Kristof has made exposing the evils of Backpage.com a mini-mission of his (here are his two prior columns on the sex-trafficking element of their operation), plenty of others have been going after the company too. They've faced numerous protests, including some put together by the Rebecca Project for Human Rights, which also went after Craigslist to get them to shut down their "erotic services" section in 2010. Attorneys general from 48 states have also called on Backpage to stop running adult service ads, and now 19 U.S. Senators have written a letter of a similar nature. So far, Backpage has maintained that they shouldn't be singled out, because a lot of other sites also have similar problems. (Umm, not much of an excuse…) They've also said they should get a pass because they try to screen ads for minors and report possible trafficking to the authorities. Well, here's a giant pat on the back for you, guys. Great job.

Of course, Backpage doesn't only offer ads for sex with minors, there are plenty of legitimate ads placed by adults, but there's no question they're a player in the pimping out of minors and other terrible things—and they're cleaning up nicely as a result. According to Kristof's March 17th column,

Backpage accounts for about 70 percent of prostitution advertising among five Web sites that carry such ads in the United States, earning more than $22 million annually from prostitution ads, according to AIM Group, a media research and consulting company.

Hmm, $22 million you say? No wonder they don't want to let go of the sex ads. Despite issuing half-hearted denials of the problem and their role in it, Village Voice Media has basically been immune to the public pressure, largely because they're privately owned. But now, after Kristof managed to get documents that reveal some of the owners, things may be changing.

It seems the two biggest stakeholders, together owning roughly half the shares, are Jim Larkin and Michael Lacey, who also manage the company. Goldman owns a 16 percent share and is apparently the best known of the other owners. They invested back in 2000, which was actually before Backpage was merged into Village Voice Media. Other significant stakeholders in the company include an investment company called Trimaran, (which is also now trying to dump its shares), Alta Communications, and Brynwood Partners.

It's worth pointing out, as Kristof takes pains to do, that Goldman is a gigantic company, and this investment was tiny for them:

I have no reason to think that Goldman's top executives knew of its connection to sex trafficking. Goldman prides itself on its work on gender: its 10,000 Women initiative does splendid work supporting women in business around the globe.

Oh, boy, can we please get over the idea that supporting one good cause in any way negates doing something else that is terrible? And just because those at the tippy-top might not have known what was going on, people at some level certainly did. Goldman had a seat on Village Voice Media's board for four years, and, as Kristof says, "There's no indication that Goldman or anyone else ever used its ownership to urge Village Voice Media to drop escort ads or verify ages." That's the kind of Grade A behavior we've come to expect from Wall Street's corporate "citizens," so it almost feels like there's really no reason to get outraged anew.

What's amusing (read: so maddening that it turns you into one of those people who stares into the middle distance and giggles at nothing in particular) about this whole thing is that once Kristof started prying, both a Goldman spokeswoman and a spokesperson for Trimaran said they had "no influence over operations." Something rings incredibly false about that statement. It's true they may not have been involved in the daily operations of the company, but when you own something, you do have some control over it. Kristof rightly points out that they could have used that control to effect some change:

If the minority shareholders, Goldman included, worked together instead of rushing for the exits, they might be able to pressure Village Voice Media to get out of escort ads.

So that puts us in the perverse position of actually wishing Goldman had continued to own a stake in a company that facilitates pimps and the selling of children in hopes that at some later date they might sway said company into being slightly less evil. Of course, we don't have to worry our pretty little heads about all the complex issues that raises because they obviously bailed at the first sign of trouble, without any concern for the actual substance of the problem. While there may not be much to do about Goldman's role in this except be disgusted, at least we can add this to the official list of reasons to be angry at Wall Street, and it should give Occupy Wall Street protesters (yes, they're still going) something new to put on their signs.

Financiers and Sex Trafficking [New York Times]