By Ilaina Jonas and Chris Francescani
NEW YORK, April 1 (Reuters) – A private equity fund run by
Goldman Sachs Group Inc, under fire over its business
ethics, has agreed to sell back its stake in a media company
that critics say facilitates sex trafficking.
GS Capital Partners III on Friday signed a deal to sell its
16 percent stake in Village Voice Media, which owns the website
Backpage.com, back to management, a Goldman spokeswoman said
Sunday.
The divestiture is the latest development in a growing
controversy over online adult advertising that has pitted
celebrities, law enforcement officials, members of Congress and
a New York Times columnist against Village Voice Media, a
private media company that has the largest share of revenue in
the United States from online advertising of adult services.
The fund began negotiations with Village Voice Media in
March, after deciding in 2010 that it had grown “uncomfortable
with the direction of the company,” and Goldman’s inability to
influence its operations, said Andrea Raphael, a Goldman Sachs
spokeswoman.
Raphael said the fund invested $30 million in the Village
Voice in 2000. The investment was converted into a 16 percent
minority stake when the Village Voice merged with New Times Inc
in 2006. She declined to disclose the sale price, but said the
fund lost the “vast majority” of its investment.
Elizabeth McDougall, general counsel for Village Voice
Media, said on Sunday that the media company has no plans to
shut down its adult advertising section of Backpage.com.
Some critics claim that Backpage.com facilitates the
trafficking of underage prostitutes and sex slaves, although
others question that.
The media company has responded aggressively, challenging
critics’ data with editorial investigations and claiming that it
goes to far greater lengths than competitors in cooperating with
law enforcement and monitoring its ads for illegal activity.
In September, 2010, public pressure – including a letter
from 17 of the nation’s attorneys general, led the all-purpose
online classifieds website Craigslist to shutter its lucrative
adult section. Much of the advertising appears to have moved to
Backpage.com.
Online prostitution advertising generated at least $3.1
million in revenue in February, on five U.S. websites, an
increase of 9.8 percent from a year earlier, according to
interactive media and classified advertising consultant AIM
Group. Nearly 80 percent of the revenue was attributed to
Backpage.com, AIM said in a report published March 22.
The Goldman Sachs sale was first reported in a New York
Times column on Saturday by Nicholas Kristof, who told Reuters
that when Goldman learned last week he was investigating the
media company’s interests, it “moved with record speed to unload
their stakes” in Village Voice Media.
The Wall Street bank has attracted recent criticism over
conflict of interest and other ethical questions, particularly
since an op-ed in the New York Times by a former Goldman Sachs
banker whose critique of a culture of greed went viral.
DRIVING ADS UNDERGROUND
Some law enforcement authorities say that of the hundreds of
websites that host adult ads, Backpage is the most high-profile.
“In every case of sex trafficking that the Brooklyn District
Attorney has, the girl was involved with Backpage.com at some
point or another,” said Jerry Schmetterer, spokesman for
Brooklyn District Attorney Charles Hynes.
But McDougall, who was hired by Village Voice Media in
February after representing Craigslist during the controversy
that led the site to shut down it’s adult section, rejected
demands that the site shut down its adult section.
She said to do so would be ‘counter-productive’ to law
enforcement efforts to investigate and prosecute child
prostitution and sex trafficking, in that it would drive the ad
traffic to host sites that operate offshore, outside the reach
of U.S. authorities.
McDougall said that Backpage.com cooperates extensively with
law enforcement and missing children groups.
In 2011, Backpage.com reported 2695 cases of suspected child
trafficking to the National Center for Missing and Exploited
Children, according to January, 2012 testimony of NCMEC
president Ernie Allen.
Backpage.com also posts lists for hundreds of other
classified advertising throughout the country.
