Appeals Court Affirms $1.5 Million Restitution Judgment Against Paul Hansmeier

from the kent,-i'd-be-lying-if-i-said-my-law-firm-wasn't-committing-crimes... dept

The long saga of Paul Hansmeier — one of the Prenda Law Firm partners who turned the already-shady business of copyright infringement lawsuits into a rolling debacle composed of fraud, extortion, and catastrophic failures — has produced another coda.

Hansmeier got into the copyright enforcement business thinking it would produce a steady stream of easy cash. He and his associates went after people who allegedly downloaded porn, thinking that people would pay anything asked to avoid having their sexual predilections exposed to friends, family, and the public at large.

When that didn’t work as well as Hansmeier had hoped, he went further. He and his associates produced their own porn (but didn’t star in it, thankfully) and served it up to piracy services in order to produce a steady stream of defendants. (These home productions were never made available for legal viewing. They only existed as lawsuit bait.) It all ended in a criminal indictment and a guilty plea by Hansmeier, who had recently branched out into ADA trolling in his home state of Minnesota.

That brings us to the Eighth Circuit Court of Appeals, which has affirmed everything Hansmeier wishes wasn’t happening to him, like his 168-month prison sentence for fraud and money laundering and a $1.5 million restitution order.

The court recounts the sordid details of the long-running scam, including the numerous shell companies created to hide the origin of copyrighted films, as well as the profits (and losses) of the law firm supposedly representing a handful of porn-producing clients. It details the use of “ruse defendants” to avoid courts’ limitation of discovery requests after judges started figuring out just how shady Hansmeier and Prenda Law were. What began as sanctions and subpoena denials slowly and steadily turned into disciplinary action from state bars and, finally, a criminal investigation that resulted in guilty pleas by both Hansmeier and his partner, John Steele.

Hansmeier doesn’t want to be on the hook for $1.5 million in restitution. But the Appeals Court [PDF] doesn’t see anything that warrants a reversal of the lower court’s order. As it points out, Hansmeier still comes out ahead, even after being ordered to pay back $1.5 million of his illegal takings.

Based on his review of Hansmeier and Steele’s financial documents, Agent Kary estimated that, between 2010 and 2013, the alleged infringers Hansmeier and Steele targeted paid over $6 million total in settlements. Agent Kary then summarized a spreadsheet the FBI created to estimate the proper restitution amount. The spreadsheet did not include all of the settlement money that came in over this time period. Rather, it was limited to payments made after April 2011, which is when there was evidence that Hansmeier and Steele posted to file-sharing websites a movie to which they held the copyright—in other words, when, under the government’s theory, their fraud scheme began—and to payments that he could link to specific victims. Based on these parameters, he calculated a restitution figure of $1,541,527.37.

The Appeals Court notes Hansmeier’s actions didn’t just screw over internet users and defraud Prenda’s clients and partners. The fraud also affected the courts handling Prenda’s copyright cases. Had judges known what Hansmeier was engaged in, they would have rejected discovery requests and handed down sanctions even sooner than they already did.

It does, however, reject the government’s argument that Hansmeier waived his right to appeal the judgment. The court says he can appeal. But it ultimately doesn’t matter. The figure derived from the government’s inspection of Hansmeier’s criminal activity is as close to accurate as it gets without straying from the “actual loss” guidelines. As noted above, the government was able to find documentation for $6 million in possibly fraudulently obtained settlements. The court only ordered the return of a quarter of this amount. That’s good enough for the Eighth Circuit, which says Hansmeier gets to keep serving his time and watch whatever assets he has left start getting liquidated to pay off this order.

Here, the government met its burden of showing by a preponderance of the evidence that the $1,541,527.37 loss total was attributable solely to settlement payments from the fraud scheme. […] In coming to his final loss amount, Agent Kary included only settlement payments from April 2011 on, when Hansmeier and Steele directed an associate to upload a movie called Sexual Obsession, which they held the copyright to and which they used in their fraudulent lawsuits, to file sharing websites. Agent Kary explained that Sexual Obsession became the “go-to movie as far as gaining settlements from individuals.” He said that other movies were not a “significant” source of profit from that point on, constituting just “a few [payments] trickling in here and there.” Considering this information, the district court characterized potential payments from “legitimate” lawsuits over this period as making up no “more than potentially a negligible amount” of the money Hansmeier and Steele received.

Even more narrowing of the amount followed. But the smoking gun here is Hansmeier’s own testimony, which is perhaps more damning than the results of the government’s investigation. Even with this in play, Hansmeier is still only “out” half of what he took from others illegally.

Finally, Hansmeier himself acknowledged in his plea agreement that, between 2011 and 2014, he and Steele “received more than $3,000,000 in fraudulent proceeds” from their lawsuits.

The $1.5 million judgment stands. The man who helped ruin the lives of dozens of people will have to continue to deal with his multiple self-inflicted wounds. Hopefully, he’ll be a cautionary tale that will dissuade future IP enforcement opportunists from engaging in litigation-adjacent get-rich-quick schemes that defraud the public and the court systems their tax dollars pay for.

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Companies: prenda, prenda law

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Comments on “Appeals Court Affirms $1.5 Million Restitution Judgment Against Paul Hansmeier”

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That One Guy (profile) says:

'Oh darn, I only get to keep 4.5 million...'

Hopefully, he’ll be a cautionary tale that will dissuade future IP enforcement opportunists from engaging in litigation-adjacent get-rich-quick schemes that defraud the public and the court systems their tax dollars pay for.

I don’t see why it would because honestly even one and a half million seems like a trivial amount given the FBI estimated Prenda made four times that amount and by Hansmeier’s own admission he and Steele got twice that amount. Given that I’d say the only real penalty he’s facing is the jail time, but I suppose better than the nothing they were dealing with before that allowed them to run their scam for years.

The judges may think that they’re sending out a warning signal to other would-be copyright-extortionists but with gains like that I’m afraid the only likely takeaway is that crime absolutely does pay, and pay well, so long as you don’t go as overboard as the lot at Prenda did and attract too much attention.

This comment has been deemed insightful by the community.
That Anonymous Coward (profile) says:

"Hopefully, he’ll be a cautionary tale that will dissuade future IP enforcement opportunists from engaging in litigation-adjacent get-rich-quick schemes that defraud the public and the court systems their tax dollars pay for."


The window is about 10 years before they finally piss off the right people & hell rains down upon them.

Any news on Hans’s lawsuit against the DoJ to get a court to rule it is perfectly legal for a copyright holder to order his agent to upload the content online & then sue everyone who downloads it?

Scary Devil Monastery (profile) says:

Re: So if I Rob a bank?

Better comparison would be outright fraud. The courts have now sent the message that if you defraud the public and the courts, you will have to give back 25% of what you made.

He also gets 14 years in jail of course, minus time off for good behavior (assuming he doesn’t try to defraud his fellow inmates or the wardens along the road).

But it is weird that the courts did not sanction him for the full amount.

That Anonymous Coward (profile) says:

Re: Re: So if I Rob a bank?

It took them like 10 years to notice this fraud.
It took them getting MULTIPLE referrals from Judges to even consider that maybe just maybe this was a scam.
A court learned that the named defendant was just playing a role so they could get more names to shake down….

And they STILL cut a deal with all of the other players.
I mean its not like if someone looked closer there would be serious questions about improper influence on courts & state bars…. giggle

I mean its not like they were so inept at investigating, Steeles sister wrote a letter about how he gave her her first job & glowing praise… How did the miss that that business was called ‘The Academy’ and they scammed the hell out of their clients then blew town?

Prenda is utter scum, but they had money.
If the target has money DoJ is terrified they might put up a decent fight & they might not win. So they cut deals to get huge piles of evidence to bury Hans under club fed… but not enough digging that they could have found the money they were hiding & fraud on the bankruptcy court, and the ADA shakedown scheme where the payments to the named non(? i forget) profit magically went missing…

Its far easier to put a poor person in jail for 1000 years for having a joint than to get any justice against a rich person who got richer by poisoning poor people.

That One Guy (profile) says:

Re: So if I Rob a bank?

Oh not at all, if you robbed a rich person/business you can be sure they’d not only demand the full amount back but they’d squeeze you hard enough for cash that your relatives several generations back and forward would feel it. Rob a few/bunch of peasants however and it’s all good, throw some pocket change at the courts to pay the pittance of the fines levied and you can keep the rest and so long as you didn’t make too much of a pest of yourself you don’t even have to worry about jail.

The judge may think they’re sending a message with this ruling, and they most certainly are, it’s just not the one they think they’re sending.

sumgai (profile) says:

Re: So if I Rob a bank?

Keep in mind that Hansmeier was only one half of the operation – in all likelyhood, John Steele also got about half of that "income" (read as: proceeds from illegal activity). When Hansmeier testified that the income was about 3 million, he left out the magic word "each".

Disclaimer: In actuality, I don’t know that for a fact, I’m deducing such from reported accounts and not from a direct transcription of the court proceedings.

Side note: Kudos to Agent Kary for going through the (cooked) books in an attempt to piece together the trail of stolen cash. If his compass is still pointing North, then my hat’s off to him – I know I couldn’t’ve remained sane after wallowing in that particular cesspool.

That One Guy (profile) says:

Re: Re:

Yeah, I wouldn’t trust claims of bankruptcy from Hansmeier as he’s got a history of ‘forgetting’ about money he has and claiming to be broke in order to weasel out of paying what’s been demanded of him.

(To avoid tripping the spam filter I won’t include the link, for more info search TD for ‘Things Looking Even Worse For Prenda’s Paul Hansmeier: Bankruptcy Fraud On Deck’)

That Anonymous Coward (profile) says:

Re: Salt Marsh

Like many things in the Prenda saga, it was just something fake.
The closest we came is that its the last name of Steeles sisters man.
But given that some nicely name trust accounts in this were fscking shoeboxes in Hans’s closet I discount nothing.

I am very sure they did not look as deeply into this as at least I would have liked, because it shows systemic failures of the justice system to actually do that justice thing.

But it was better to wrap this up ASAP, cut all the deals, give us a head to put on the wall (but only kinda b/c well daddy still has pull for some messed up reason) & its not like he can ask to get his license unsuspended in a short period of time… oh wait.

This is one of those wonderful things…
If you owe a bank 10 million, you have a problem.
If you owe a bank 100 million, they have a problem.

Where would any of us be if we didn’t report millions in income on our taxes?

GEMont says:

Crime Does Not Pay hehehehehhehhehheee

"The $1.5 million judgment stands. The man who helped ruin the lives of dozens of people will have to continue to deal with his multiple self-inflicted wounds. Hopefully, he’ll be a cautionary tale that will dissuade future IP enforcement opportunists from engaging in litigation-adjacent get-rich-quick schemes that defraud the public and the court systems their tax dollars pay for."

Maybe I’m just reading this wrong, but being allowed to keep 75% of the take from an illegal operation, sounds like a pretty darn good deal to me. I’ll be very surprised if this does not simply let a lot of future law scammers know where they need to cover their backsides. I mean, hell, Hansmeier and Steele made just about every mistake possible and still managed to play long enough to accrue a massive fortune… and when caught, simply paid a fine.

That is incentive all right. But not the kind that will…

"…dissuade future IP enforcement opportunists from engaging in litigation-adjacent get-rich-quick schemes that defraud the public and the court systems their tax dollars pay for."

I’m very pleased that he got jail time, but with that much money to play with in today’s "anything for cash" fascist-run world, I’m sure he’ll be back on the streets in a couple years max. He’ll likely be the head honcho of his own shiny new law firm in less than five.

I musta missed it.

Scary Devil Monastery (profile) says:

Re: Re: Re: Crime Does Not Pay hehehehehhehhehheee

"At least everyone seems to have the same sentiment here. :)"

Not quite everyone. There’s at least one copyright maximalist with side hobbies of white supremacy, conspiracy theories, and ultra-authoritarianism who sometimes comes around ranting and raving about how pirates are all going to be punished. He used to go balls-to-the-wall defending Hansmeier and Steele as champions of Truth and Justice.

I’m honestly just waiting for him to make an appearance.

Neil says:

Prenda f***ers

I didn’t pay those motherf***rs a dime. I got my letter, promptly freaked out when they asked for $4,000 and then took it to a lawyer friend.
After getting a “Huh. You’ll probably have to pay it.” I went online and found someone who received a similar letter and this person said, “Ignore it. This man is a con artist and if you don’t respond to anything, they won’t know you received the letter, since it wasn’t registered.” That’s exactly what I did and waited it out until their collapse.

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