Steele LLC Lawsuit: Forgery, Sanctions, and Federal Prison

The Prenda Law lawsuit campaign was a copyright-trolling scheme run between 2011 and 2014 by attorneys John Steele and Paul Hansmeier, who used shell companies to sue thousands of people for downloading pornographic films the lawyers themselves had uploaded to file-sharing networks. The operation generated roughly $6 million in settlements before federal courts unraveled it. Both men were disbarred, convicted of fraud and money laundering, and sent to federal prison, with Hansmeier receiving a 14-year sentence and Steele 5 years.¹²

How the Scheme Worked

Steele and Hansmeier built the operation on shell LLCs — entities like AF Holdings, Ingenuity 13, Guava, Livewire Holdings, and LW Systems — registered under the names of associates and employees so the attorneys’ financial interest stayed hidden.³ The LLCs held copyrights to pornographic films that, in many cases, the lawyers had produced themselves.⁴

Starting in 2011, the firm began uploading its own films to BitTorrent sites, including The Pirate Bay, effectively seeding the very infringement it would later sue over.⁴ Evidence in a Florida case linked a Pirate Bay user named “sharkmp4” to an IP address tied to Steele’s personal GoDaddy account.⁵ In at least one instance, “sharkmp4” uploaded a video to The Pirate Bay three days before the corresponding shell company had even filed for the copyright.⁶

Once the content was online and people had downloaded it, a forensic monitoring company controlled by Steele would identify their IP addresses. The firm then filed lawsuits naming hundreds or thousands of anonymous John Doe defendants in a single case, subpoenaed internet service providers to unmask them, and sent settlement demands typically in the range of $2,000 to $4,000.⁷ The amounts were calibrated to fall just below the cost of mounting even a minimal defense. The threat of statutory damages up to $150,000 per work, combined with the embarrassment of being publicly associated with pornography, pushed many recipients into paying regardless of whether they had actually downloaded anything.

The Alan Cooper Forgery

One of the most damaging threads in the case involved a Minnesota man named Alan Cooper, who had worked as a caretaker at Steele’s cabin from 2006 to 2012.⁸ Without his knowledge, Steele and associate Mark Lutz forged Cooper’s signature on copyright-assignment agreements, making him appear to be a principal of AF Holdings and Ingenuity 13. Those forged documents gave the shell companies the standing they needed to file suit.

A federal magistrate judge in Minnesota found that Cooper never spoke to Lutz, never signed the agreements, never authorized anyone to sign his name, and never held any position with AF Holdings.⁸ The court rejected Steele’s testimony to the contrary, concluded it had been the victim of fraud, and ordered AF Holdings to disgorge the settlement money collected in the case. Cooper later sued Steele and Prenda Law himself, winning a default judgment of $255,000, including $250,000 in punitive damages.⁹

Judge Wright’s Sanctions Order

The case that cracked the scheme open publicly was Ingenuity 13 LLC v. John Doe in the Central District of California. In May 2013, U.S. District Judge Otis Wright issued a sanctions order against Prenda Law, its principals Steele, Hansmeier, and Paul Duffy, attorney Brett Gibbs, and the shell companies AF Holdings and Ingenuity 13.¹⁰

Wright described Prenda as a “porno-trolling collective” engaged in “brazen misconduct and relentless fraud.” He found the firm had forged a signature on a copyright assignment, lied about property locations, and ignored a court order halting ISP subpoenas. When Steele, Hansmeier, and Duffy appeared in his courtroom, all three invoked the Fifth Amendment.¹¹

Wright ordered the principals to pay more than $40,000 in attorney’s fees to a John Doe defendant, then applied a punitive multiplier that doubled the total to over $81,000. He referred the attorneys to their state and federal bars for conduct showing “moral turpitude unbecoming an officer of the court,” and referred the matter to the U.S. Attorney and the IRS Criminal Investigation Division.¹⁰

Appellate courts backed him up. In August 2014, the Seventh Circuit affirmed sanctions and contempt orders in Lightspeed Media Corp. v. Smith, finding the lawyers were “in cahoots” to “use the judicial system for a legally meritless claim.”¹² The defense in that case was awarded $261,025 in legal fees.¹³ In June 2016, the Ninth Circuit affirmed Judge Wright’s order and required the principals to post a second bond of over $135,000 to cover projected appellate costs, citing their history of lying about their ability to pay. A month later, the Seventh Circuit upheld a $94,343 discovery sanction split between Steele and Hansmeier, noting evidence that Steele had moved over $300,000 out of a bank account to avoid payment.

Federal Charges, Guilty Pleas, and Prison

On December 16, 2016, a federal grand jury in the District of Minnesota returned an 18-count indictment against Steele and Hansmeier, charging them with mail fraud, wire fraud, conspiracy, money laundering, and conspiracy to commit and suborn perjury. The indictment alleged the pair had generated approximately $6 million from the scheme between 2011 and 2014.¹⁴³

John Steele

Steele was the first to break. On March 6, 2017, he pleaded guilty before U.S. District Judge Joan Ericksen to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering, and agreed to cooperate against Hansmeier.¹⁴ Two months later, the Supreme Court of Illinois disbarred him on consent.¹⁵

Prosecutors described Steele’s cooperation as valuable. Assistant U.S. Attorney Ben Langner told the court Steele’s assistance was “crucial” to securing Hansmeier’s guilty plea and said Steele “deserved a much shorter sentence” than his co-defendant.¹⁶ Steele’s own attorney, Mark Eiglarsh, said in a filing that Steele “misled federal judges and wronged the justice system” and was “driven by money while putting the truth in the back seat.”¹⁷

On July 9, 2019, Judge Ericksen sentenced Steele to 60 months in federal prison, followed by two years of supervised release, and ordered him to pay $1,541,527.37 in restitution.² “The crime you committed was extremely serious. You abused the court system,” she told him.¹⁶

Paul Hansmeier

Hansmeier held out longer. He pleaded guilty on August 17, 2018, to the same two counts, reserving the right to withdraw the plea pending an appeal of a motion to dismiss.¹⁸ On June 14, 2019, Judge Ericksen sentenced him to 168 months, 14 years, in federal prison, followed by two years of supervised release, and ordered the same $1,541,527.37 in restitution to 704 victims.¹

“It is almost incalculable how much your abuse of trust has harmed the administration of justice,” Judge Ericksen told him. “The major harm here is what happens when a lawyer acts as a wrecking ball.”¹⁸ The Eighth Circuit later affirmed Hansmeier’s conviction and sentence, rejecting his motion to dismiss the indictment and calling the restitution amount a “conservative” estimate of losses.³ As of early 2024, he remained incarcerated at the Federal Correctional Institution in Sandstone, Minnesota.¹⁹

The Other Players

Paul Duffy, the third Prenda principal, co-founded the firm with Steele in November 2011 and was named alongside Steele and Hansmeier in nearly every sanctions order.⁹ He died on August 10, 2015, at age 55, from heart- and alcohol-related conditions, before the federal indictment came down.²⁰

Brett Gibbs was Prenda’s local counsel in California, working under Steele and Hansmeier.¹⁰ He was held jointly and severally liable for the $81,000 in Judge Wright’s order but, by mid-2013, had broken with the firm and signed a sworn declaration supporting sanctions against his former colleagues, contradicting statements Hansmeier had made about the shell entities.²¹

Mark Lutz was identified in court filings as the “sole principal” of AF Holdings but was found by Judge Wright to be essentially a paralegal for Steele and Hansmeier.⁸ Lutz was supposed to testify at a September 2013 evidentiary hearing but, according to Hansmeier, failed to board his flight.

What Prenda Changed for Copyright Trolling

Before Prenda drew sustained judicial attention, the copyright-troll business model ran largely unchecked. A plaintiff could group hundreds or thousands of anonymous Doe defendants into a single lawsuit, obtain discovery from ISPs to identify them, and extract settlements before anyone appeared in court to contest the claims.⁷ Filing costs were low, statutory damages threatening enough to coerce payment, and the stigma of pornography-related allegations pushed most targets to settle quietly.

The judicial backlash against Prenda forced courts to look harder at these tactics. Judges increasingly rejected mass joinder of unrelated defendants, questioned whether an IP address reliably identifies the person responsible for a download, and required plaintiffs to show a good-faith basis for jurisdiction before granting early discovery. Reviewing AF Holdings v. Does 1-1058, the D.C. Circuit expressed skepticism about joining more than 1,000 defendants in a single lawsuit and about the assumption that an IP address identifies an individual rather than an account holder.²² The Prenda prosecution did not end copyright trolling, but many of the procedural tightenings that followed trace back to it.

1
U.S. Department of Justice. Minnesota Attorney Sentenced to 168 Months in Prison for Multi-Million Dollar Pornography Film Copyright Scheme
2
U.S. Department of Justice. Florida Attorney Sentenced to 60 Months in Prison for Multi-Million Dollar Pornography Film Copyright Scheme
3
Caselaw Findlaw. United States v. Hansmeier
4
BBC News. Prenda Law Lawyer Pleads Guilty to Fraud
5
Ars Technica. Pirate Bay Data Suggests Prenda Did Create Honeypot for Downloaders
6
Techdirt. New Anti-Prenda Court Filing Lays Out Tons of Evidence Suggesting John Steele Uploaded Videos to BitTorrent Himself
7
UC Berkeley School of Law. Copyright Trolling, an Empirical Study
8
U.S. District Court, District of Minnesota. AF Holdings LLC v. Doe, Order
9
Illinois ARDC. Disciplinary Complaint Against John Lawrence Steele
10
Electronic Frontier Foundation. Order Issuing Sanctions, Ingenuity 13 LLC v. John Doe
11
Courthouse News Service. Judge Refers Porno-Trolling Law Firm to Feds
12
U.S. Court of Appeals for the Ninth Circuit. Ingenuity13 LLC v. John Doe, Memorandum
13
Ars Technica. 7th Circuit to Prenda Law: We Told You to Stop Digging. You Didn’t Listen
14
U.S. Department of Justice. Attorney Pleads Guilty to Role in Multi-Million Dollar Scheme to Fraudulently Obtain Copyright
15
General Counsel News. Lawyer Who Founded Copyright-Trolling Prenda Law Is Disbarred
16
MPR News. Second Banana in Porn Troll Case Gets Five Years
17
NBC News. Attorney Who Oversaw Porn Film Fraud Scheme Sentenced to Five Years
18
Chicago Tribune. Minnesota Lawyer Sentenced to 14 Years for Porn Scheme
19
Supreme Court of the United States. Hansmeier v. USA, Waiver Letter
20
FindLaw. Prenda Copyright Troll Disbarred, Faces Fraud and Money Laundering Charges
21
Ars Technica. Brett Gibbs Flips, Backs Sanctions Against Former Prenda Law Colleagues
22
Electronic Frontier Foundation. Prenda Appeal: Copyright Troll Tactics Challenged in DC Circuit