Attorneys Indicted for Multimillion Dollar Scheme to Fraudulently Obtain Settlements from Victims who Downloaded Pornography

United States Attorney Andrew M. Luger today announced a federal indictment charging PAUL R. HANSMEIER, 35, and JOHN L. STEELE, 45, with conspiring to fraudulently obtain millions of dollars by deceiving federal and state courts.  HANSMEIER was suspended from the practice of law in the State of Minnesota on September 12, 2016.

“The defendants in this case are charged with devising a scheme that casts doubt on the integrity of our profession,” said U.S. Attorney Luger. “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 from abusing our system of justice.”

“The charges announced today describe a fraud scheme perpetrated by lawyers and officers of the court who abused their positions of trust for personal enrichment,” said Special Agent in Charge of the FBI Minneapolis Division Richard T. Thornton. “The FBI remains committed to uncovering fraud such as this to protect the integrity of our civil justice system.”

“The role of IRS Criminal Investigation becomes even more important in complex financial investigations involving money laundering because of the time it takes to unravel,” stated Special Agent in Charge Shea Jones, St. Paul Field Office. “IRS Criminal Investigation is committed to working these types of difficult financial investigations and following the criminal’s money, wherever it leads.”

According to the indictment, between 2011 and 2014, the defendants orchestrated an elaborate scheme to steal millions of dollars by threatening copyright lawsuits against individuals who supposedly downloaded pornographic movies from file-sharing websites.  The defendants created and used a series of sham entities to obtain copyrights to pornographic movies – some of which they filmed themselves – and then uploaded those movies to file-sharing websites like “The Pirate Bay” in order to lure people to download the movies.

According to the indictment, to learn the identities of their potential victims, the defendants filed bogus copyright infringement lawsuits, through which they got permission from courts to subpoena internet service providers for subscriber information associated with the IP addresses used to download their pornographic movies. After getting the subscriber information, the defendants used extortionate letters and phone calls to threaten the victims with enormous financial penalties and public embarrassment unless they agreed to pay a settlement of thousands of dollars.

According to the indictment, various courts began to restrict the defendants’ ability to sue multiple individuals in the same copyrights lawsuit. So the defendants changed their tactics, in order to keep extorting victims, and began to file lawsuits falsely alleging that computer systems belonging to their sham clients had been hacked. HANSMEIER and STEELE recruited ruse defendants to facilitate their phony “hacking” lawsuits. The ruse defendants were people who had been caught downloading pornography from a file-sharing website. The ruse defendants agreed to be sued in exchange for HANSMEIER and STEELE waiving a settlement fee. The ruse defendants were a necessary part of the scheme so that HANSMEIER and STEELE could seek discovery against the ruse defendants’ supposed “co-conspirators.”

Finally, when courts became suspicious of the defendants’ tactics and motives, the defendants began a long process of lies and deceit designed to conceal the truth and deflect responsibility from themselves. As courts began to uncover the defendant’s unscrupulous litigation tactics, judges began denying the defendants’ requests to subpoena ISPs, dismissing lawsuits, accusing the defendants of deceptive and fraudulent behavior, and imposing sanctions against the defendants and their associates. For example, on May 6, 2013, the District Court for the Central District of California issued an order imposing sanctions against the defendants. The order read, in part:

Plaintiffs [including HANSMEIER and STEELE] have demonstrated their willingness to deceive not just this Court, but other courts where they have appeared.  Plaintiffs’ representations about their operations, relationships, and financial interests have varied from feigned ignorance to misstatements to outright lies.  But this deception was calculated so that the Court would grant Plaintiff’s early-discovery requests, thereby allowing Plaintiffs to identify defendants and exact settlement proceeds from them.  With these granted requests, Plaintiffs borrow the authority of the Court to pressure settlement.

In total, the defendants obtained approximately $6,000,000 made possible by the fraudulent copyright lawsuits they peddled to courts throughout the country.

This case is the result of an investigation conducted by the FBI and the Criminal Investigation Division of the IRS.

This case is being prosecuted by Assistant U.S. Attorneys Benjamin Langner and David Maclaughlin, and Brian Levine, Senior Counsel with the Computer Crime and Intellectual Property Section of the U.S. Department of Justice. 

Defendant Information: 

PAUL R. HANSMEIER, 35
Saint Paul, Minn.

Charges:
• Conspiracy to commit mail fraud and wire fraud, 1 count
• Conspiracy to commit perjury and suborn perjury, 1 count
• Conspiracy to commit money laundering, 1 count
• Wire fraud, 10 counts
• Mail fraud, 5 counts

JOHN L. STEELE, 45
Unknown, Florida

Charges:
• Conspiracy to commit mail fraud and wire fraud, 1 count
• Conspiracy to commit perjury and suborn perjury, 1 count
• Conspiracy to commit money laundering, 1 count
• Wire fraud, 10 counts
• Mail fraud, 5 counts