LOS ANGELES (CN) - A law firm that made millions suing people for illegally downloading porn movies may face a criminal probe after a federal judge fined it more than $81,000 for "brazen misconduct and relentless fraud."
U.S. District Judge Otis Wright on Monday ordered Prenda Law to pay more than $40,000 in attorney's fees and costs to a John Doe defendant, then doubled that amount to more than $81,000.
"This punitive multiplier is justified by plaintiffs' brazen misconduct and relentless fraud," Wright wrote in his 11-page order.
He said the sanction applies to the law firm; principals John Steele, Paul Hansmeier and Paul Duffy; Prenda attorney Brett Gibbs; and shell companies AF Holdings and Ingenuity 13.
Wright said he will refer the matter to the U.S. Attorney for the Central District of California, and to the Criminal Investigation Division of the Internal Revenue Service.
Wright described Prenda as a "porno-trolling collective" that made millions by suing Internet users using "boilerplate" complaints.
Prenda targeted thousands of anonymous defendants who downloaded a single copyrighted porn movie from the peer-to-peer filing-sharing network BitTorrent, and then used the federal courts to secure quick $4,000 settlements - "just below the cost of a bare-bones defense," Wright wrote.
"For these individuals, resistance is futile; most reluctantly pay rather than have their names associated with illegally downloading porn," the judge wrote. "So now, copyright laws originally designed to compensate starving artists allow starving attorneys in this electronic-media era to plunder the citizenry."
Wright said this strategy "was highly successful because of statutory copyright damages, the pornographic subject matter, and the high cost of litigation."
Wright noted that settlement funds never went to AF Holdings or Ingenuity 13, but remained in accounts controlled by Steele, Hansmeier and Duffy.
Ingenuity 13 was the plaintiff in Prenda's lawsuit
against the Doe defendant, whom the firm accused of illegally downloading a movie called "A Peek Behind the Scenes at a Show."
Last month, Wright ordered
Duffy, Steele and Hansmeier to appear in court to explain Prenda's questionable legal tactics. The attorneys showed up, but refused to testify by pleading the Fifth Amendment.
That didn't stop Wright from issuing a scathing judgment against the firm.
Calling Gibbs a "redshirt" who took his marching orders from Steele, Hansmeier and Duffy, Wright said Gibbs was told to prosecute the lawsuits "only if they remained profitable and to dismiss them otherwise."
But Prenda lawyers failed to conduct proper investigations in each case, Wright said, and could only show that someone using the subscriber's IP address "was seen online in a torrent swarm."
"Even so, the court is not as troubled by the lack of reasonable investigation as by their cover-up," Wright wrote.
Gibbs had claimed the firm thoroughly investigated each defendant before filing suit, but Wright said these arguments "suggest a hasty after-the-fact investigation, and a shoddy one at that."
For example, Gibbs identified one defendant who allegedly downloaded a copyrighted porn movie as living in "a very large estate consisting of a gate for entry and multiple separate houses/structures on the property."
"He stated this to demonstrate the improbability that [the] Wi-Fi signal could be received by someone outside the residence," the judge explained.
But in reality, the property was "a small house in a closely packed residential neighborhood," Wright said, calling the attorney's statement a "blatant lie."
Wright likewise rebuked Prenda for trying to subpoena subscriber information from Internet service providers even though a court order halted the subpoenas.
"The evidence does not show that the order was ignored because of miscommunication among plaintiffs," Wright wrote. "The order was purposely ignored - hoping that the ISPs were unaware of the vacatur and would turn over the requested subscriber information."
Wright also found that Prenda defrauded the court by forging a signature on a copyright assignment using the name of a man who worked as Steele's groundskeeper.
"Although a recipient of a copyright assignment need not sign the document, a forgery is still a forgery. And trying to pass that forged document by the court smacks of fraud," Wright wrote.
Prenda's "web of disinformation is so vast that the principals cannot keep track - their explanations of their operations, relationships, and financial interests constantly vary," he wrote. "This makes it difficult for the court to make a concrete determination."
For that reason, the findings were "insufficient" to slap Prenda with a "seven-digit sanction," Wright ruled.
"Even if the court enters such a sanction, it is certain that plaintiffs will transfer out their settlement proceeds and plead paucity," he added.
Wright ordered the plaintiffs to pay more than $81,000 and referred the principals and Gibbs to their respective state and federal bars.
"There is little doubt that Steele, Hansmeier, Duffy, [and] Gibbs suffer from a form of moral turpitude unbecoming an officer of the court," he wrote.