(Reuters) - A second private equity firm with a stake in Village Voice Media has agreed to sell its holdings back to the media company amid claims that the alternative weekly newspaper chain facilitates sex trafficking through its Web-based ad service, Backpage.com, sources familiar with the matter said.
But at least one other financial backer of the firm plans to stick with its investment, despite the recent outcry over the adult advertising the site runs.
The move by Trimaran Capital Partners to bail out of its investment comes days after a Goldman Sachs private equity fund sold its 16 percent stake in Village Voice Media back to the company. Goldman had become "uncomfortable with the direction of the company," Goldman spokeswoman Andrea Raphael said when it confirmed its plan to sell the stake.
Goldman's decision to sell was first reported by New York Times columnist Nicholas Kristof, who has written several articles about Village Voice Media and the activities of Backpage.com.
A source close to executives at Trimaran, a New York-based firm specializing in leveraged buyouts, recapitalizations and project finance, said the firm has agreed to sell its "single-digit stake" in Village Voice Media back to the company because it, too, is uncomfortable with the direction of the company.
The investment firm would not comment. But in a statement to its limited partners on Tuesday, Trimaran said it has "reached an agreement to sell its position in Village Voice", according to a spokesman for Lincoln Financial Group, one of the fund's limited partners.
"Corporate distance is not a solution to the heinous problem of human trafficking within the United States, but it makes it easier to ignore and to deny the opportunity -- and the moral obligation -- to help fight it," Elizabeth McDougall, an attorney for Village Voice Media, said.
McDougall was not immediately available to respond to specific questions about Trimaran.
Meanwhile, another firm said it has no plans to divest its Village Voice Media investment.
Bill Egan, a partner at Boston-based Alta Communications, which specializes in investments in media and communications firm, said Alta has a longstanding subordinated loan investment in Village Voice Media, and has no plans to change the relationship.
Egan would not disclose the size of the loan, but prior to the 2006 merger, Alta owned 14 percent of New Times, according to a New York Times article written at the time the merger was announced in 2005. Egan said his firm has no management role in Village Voice Media. Village Voice Media is privately held, controlled by two long-time partners, James Larkin and Michael Lacey, who own more than 50 percent of the company. McDougall declined to disclose all the investors.
Village Voice Media has the largest share of revenue in the United States from online advertising of adult escort and massage services. Critics, including law enforcement officials, have charged that child sex trafficking victims have been advertised and sold through Backpage.com. Last week several dozen people protested against Backpage.com in front of the Village Voice's editorial offices in Manhattan.
On Tuesday, McDougall said the company actively cooperates with law enforcement in reporting suspected illegal activity on the website.
The company has no plans to close Backpage.com, McDougall said.
Under similar public pressure in 2010, the website Craigslist closed down its own adult section of the classified site.
"If stakeholders are uncomfortable with the pressure of doing the right thing, they can always opt out," McDougall wrote in an email response to questions about potential investor discomfort over its adult classified ads.
Trimaran and Goldman Sachs were part of an investment group that acquired the Village Voice and several other publications from Stern Publishing in 2000. Raphael, the Goldman spokeswoman, said the Goldman Sachs fund invested $30 million, and the investment was converted into a 16 percent minority stake when the Village Voice merged with New Times Inc. in 2006.
The source close to Trimaran executives said that firm had "no board representation" at Village Voice Media.
Online prostitution advertising generated at least $3.1 million in revenue in February on five U.S. websites, up 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 last month.
Reporting By Chris Francescani and Robin Respaut; editing by Dan Burns and M.D. Golan