Alleged Vallejo madam may sell D.C. client list

Henry K. Lee, Chronicle Staff Writer

Friday, March 2, 2007

(03-02) 12:48 PST VALLEJO -- A Vallejo woman indicted on federal racketeering charges for allegedly running a $2 million prostitution ring in Washington, D.C., is threatening to sell 46 pounds of detailed phone records of her clients to help pay for her defense, her attorney in a civil suit said today.

Deborah Palfrey, 50, may have no other choice but to "liquidate her only remaining asset," records involving some 10,000 clients, said D.C. attorney Montgomery Blair Sibley, who is representing her in a civil asset-forfeiture case that is now on hold because of a criminal indictment handed up Thursday.

Authorities have already seized about $1 million worth of real estate and $500,000 in cash and stocks in the civil case, Sibley said.

In a February e-mail to federal prosecutors, Palfrey threatened to make "life miserable for those who used her escort agency's services," court records show. "I simply cannot emphasize to you the terrible and quite unnecessary ramifications this (civil and/or criminal) will set off, if permitted to advance for both sides," she wrote, putting the phrase "civil and/or criminal" in parentheses to include both cases.

"The press will have a field day at each of our expense. I can state with unequivocal certainty this situation will be a very long and unpleasant one," she wrote. "This, despite the sickening and humiliating additional lambasting I expect to receive in the media."

Also last month, Palfrey said she intended to depose a well-known former advisor to President Clinton.

In response, Assistant U.S. Attorney William Cowden accused Palfrey of threatening to harass potential witnesses in the case. "Shockingly, claimant's 'civil' counsel threatened further public embarrassment of former customers," he said.

Palfrey, who served 18 months in prison after a 1991 conviction for running a prostitution ring, declined comment today, telling The Chronicle, "I can't speak to you for all the obvious reasons."

Authorities said Palfrey's prostitution ring involved 132 college-educated women over 13 years and generated more than $2 million dollars as men paid for sex with her escorts in hotels, residences and offices in Virginia, Maryland and Washington D.C.

Sibley said his client has operated Pamela Martin and Associates, a legal escort service, for 13 years until she closed shop in August 2006. She hired women who list their earnings as independent contractors, and Palfrey has her tax returns prepared by H&R Block, which generated the 1099 forms -- for independent contractors -- for all the escorts, he said.

"I want to know why the IRS is pursuing a crime of morality," Sibley said. "This was operated as a legal enterprise providing adult fantasy services."

On a Web site seeking donations for Palfrey's defense, Sibley wrote, "Ms. Palfrey adamantly disputes the government's claims of illegal behavior." Her business "functioned as a high-end adult fantasy firm which offered legal sexual and erotic services across the spectrum of adult sexual behavior."

But in an affidavit, IRS Special Agent Troy Burrus wrote that from 1993 to August 2006, "cash proceeds derived from Palfrey's participation in a conspiracy to operate an illegal prostitution business were obtained and laundered -- converted into checks and mailed to California -- and, thereafter, further laundered" into her homes on Capitol Street in Vallejo and in Escondido (San Diego County).

Palfrey deposited the money orders into either her Wells Fargo checking account or her Charles Schwab investment accounts, authorities said, using the proceeds to pay for her personal living expenses, including mortgage payments and car-lease payments.

According to the indictment, Palfrey placed ads seeking escorts in the Washington City Paper and the University of Maryland Diamondback newspaper. She advertised her services in the Washington City Paper, local yellow pages and on two online sites, the indictment said.

As part of a screening process, she hired male "testers" to have sex with prospective escorts, Burrus wrote in the affidavit. A woman would be "required to engage in sexual activity without being paid to insure that she is not a law-enforcement officer," Burrus wrote.

She required escorts to be at least 22 years old and have some college education and interviewed them by phone and asked them to mail an application and photograph to her post-office box in Benicia, Burrus wrote.

Customers called local Washington-area phone numbers, and the calls were forwarded to her California phone, thus generating records she could keep, authorities said.

Palfrey directed escorts to keep half of the money they earned -- usually $250 to $300 in checks or cash per session -- and to convert the other half into money orders that were to be sent by mail to the Benicia post-office box, authorities said.

Palfrey encouraged her escorts to work at least three nights a week and issued newsletters warning them not to keep records, authorities said. "All information regarding a client/appointment is to be destroyed (burned, shredded) within 24 hours," Palfrey told her employees, the affidavit said.

In a phone call to The Chronicle today, Palfrey identified herself as Jeane, her middle name. But investigators said Palfrey tried to hide her identity by telling her escorts that her name was Julia.