E-gold
Encyclopedia
e-gold is a digital gold currency
Digital gold currency
Digital gold currency is a form of electronic money based on ounces of gold. It is a kind of representative money, like a US paper gold certificate at the time that these were exchangeable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce,...

 operated by Gold & Silver Reserve Inc. under e-gold Ltd., and allowed the instant transfer of gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...

 ownership between users until 2009 when transfers were suspended due to legal issues. e-gold Ltd. is incorporated in Nevis
Nevis
Nevis is an island in the Caribbean Sea, located near the northern end of the Lesser Antilles archipelago, about 350 km east-southeast of Puerto Rico and 80 km west of Antigua. The 93 km² island is part of the inner arc of the Leeward Islands chain of the West Indies...

, Saint Kitts and Nevis
Saint Kitts and Nevis
The Federation of Saint Kitts and Nevis , located in the Leeward Islands, is a federal two-island nation in the West Indies. It is the smallest sovereign state in the Americas, in both area and population....

 but the operations were conducted from Florida, USA.

In 2007 the proprietors of the e-gold service were indicted by the United States Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...

 on four counts of violating money laundering regulations. In July 2008 the company and its three directors pleaded guilty to charges of "conspiracy to engage in money laundering" and the "operation of an unlicensed money transmitting business" in the U.S. District Court for D.C. The company faces fines of $3.7 million.

As of November 2009 the company's website states "As e-gold Users are aware, by agreement with relevant authorities including the U.S. Department of Justice, e-gold has suspended all e-metal Spend activity subject to meeting certain licensing requirements. As a result, e-gold Users have been unable to engage in any transactions, including exchanges, that would require either receiving or making an e-metal Spend from the accounts they control. We are, however, working diligently to develop a means by which account Owners will be able to access the value in their account".

As of December 2010 the company states that refund policy has been approved "We are pleased to announce that we have finalized an agreement with government authorities that will permit owners of VAP-Qualified Accounts to be paid in U.S. dollars their proportionate share of the monetized value of the e-metals in such Accounts"

History

e-gold was founded in 1996 by Dr. Douglas Jackson and Barry K. Downey.

The number of e-gold accounts (as claimed by e-gold) grew from 1 million in November 2003 to 3 million on 22 April 2006. In 2008, the company reported more than 5 million accounts.

Crime and fraud

e-gold has been perceived by the United States government as the medium of choice for many online con-artists, with pyramid scheme
Pyramid scheme
A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public...

s and high-yield investment programs ("HYIPs") commonplace. This has been blamed on e-gold's policy of irreversible transactions. In 2006, e-gold began blocking accounts where fraud is proven or suspected.

e-gold and OmniPay have also been accused of being a medium for money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...

. As digital gold currency providers are not banks but may be considered money service businesses, they are legally required to perform various sorts of "know your customer
Know your customer
Know Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...

" background checks.

In January 2006, BusinessWeek
BusinessWeek
Bloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. It is currently headquartered in New York City.- History :...

 reported on the use of the e-gold system by ShadowCrew
ShadowCrew
ShadowCrew was a cybercrime message board that operated under the domain name ShadowCrew.com between August 2002 - October 2004 and assisted criminals with allegedley stealing an estimated $4.3-$10.0+ million US dollars from fraudulent credit card transactions alone.According to the US Secret...

, an 4000-strong international crime syndicate involved in massive identity theft
Identity theft
Identity theft is a form of stealing another person's identity in which someone pretends to be someone else by assuming that person's identity, typically in order to access resources or obtain credit and other benefits in that person's name...

 and fraud. Omar Dhanani of Fountain Valley, California, connected to the ShadowCrew, is an e-gold customer and is reported to have moved amounts ranging from $40,000 to $100,000 a week from proceeds of crime through e-gold.

In response, Jackson published a letter which stated that "e-gold operates legally and does not condone persons attempting to use e-gold for criminal activity. e-gold has a long history of cooperation with law enforcement agencies in the US and worldwide, providing data and investigative assistance in response to lawful requests." He further noted that "Our staff has participated in hundreds of investigations supporting the FBI
Federal Bureau of Investigation
The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...

, FTC
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...

, IRS
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

, DEA
Drug Enforcement Administration
The Drug Enforcement Administration is a federal law enforcement agency under the United States Department of Justice, tasked with combating drug smuggling and use within the United States...

, SEC
United States Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...

, USPS
United States Postal Service
The United States Postal Service is an independent agency of the United States government responsible for providing postal service in the United States...

, and others."

In August 2006, WORLDLawDirect lawyers announced e-gold officials and their legal counsel to be the subject of a U.S. Federal Court subpoena. They believe e-gold is subject to U.S. Federal Court jurisdiction and may be held liable for some or all of the investors' losses (and potential triple damages) in the Solid Investment  large scale high-yield investment program (HYIP) scam.
On 27 April 2007, a federal grand jury in Washington, D.C. indicted e-gold Ltd and its owners on charges of money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...

, conspiracy, and operating an unlicensed money transmitting business. e-gold, however, claimed that the charges were groundless, and responded to the allegations. However, in 2008 E-gold pled guilty to some of the charges (see below).

In July 2008, the brother of footballer Joseph Yobo
Joseph Yobo
Joseph Yobo is a Nigerian footballer who plays as a centre back for Fenerbahçe, on loan from Everton. He is also an international for the Nigerian national team, for which he has 81 caps and currently captains....

 was kidnapped in Nigeria. The kidnappers demanded a ransom of $10,000 paid through e-gold.

2007 indictment

In April 2007, the US government ordered e-gold administration to lock approximately 58 e-gold accounts, including ones owned by The Bullion Exchange, AnyGoldNow, IceGold, GitGold, The Denver Gold Exchange, GoldPouch Express, 1MDC
1mdc
1mdc was a digital gold currency , originally founded in 2001. Similar to other DGCs, 1mdc allowed for the instant electronic transfer of gold between user accounts...

 (a Digital Gold Currency, based on e-gold), and forced OmniPay's owner, G&SR, to liquidate the seized assets. A few weeks later, e-gold itself was indicted on four counts.
The essence of the allegations in the indictment is twofold: (1) e-gold is an unlicensed money transmitting entity as defined by United States Code
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...

; and (2) e-gold was a de facto means of moving money from illegal activities to wit: high-yield investment programs which are Ponzi scams
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...

, credit card and identity fraud sites and retailers of child pornography.

The indictment alleges that the defendants knew of illegal activity associated with accounts and recorded it in the e-gold database with notations such as "child porn", "scammer", and "CC fraud". Additionally, it alleges that while e-gold placed "value limits" on certain accounts suspected of criminal activity, they suggested that the owner open a new account, placing no restrictions on their ability to move funds out of the original account.

Despite the legal action, e-gold remains in business, though no longer accepting any new accounts. However, its gold bullion reserves have dropped from 112,188 oz in April 2007 to 84,856 oz (from 3,491.0 kg to 2,461.2 kg) by June 2007. reserves have stabilized at 2,420 kg.

Douglas Jackson, CEO, has issued a public rebuttal.

2008 court trial

E-gold was tried with violation of 18 USC 1960 in UNITED STATES OF AMERICA v. E-GOLD, LTD, District of Columbia court. The court found against E-gold, ruling that "a business can clearly engage in money transmitting without limiting its transactions to cash or currency and would commit a crime if it did so without being licensed." In July 2008 the company and its three directors pled guilty to conspiracy to engage in money laundering and conspiracy to operate an unlicensed money-transmitting business. The company faces fines of $3.7 million, however, the guilty plea is part of a plea bargaining process in which the DA dropped most charges. Regardless, the company has vowed to continue operations following the new Federal KYC guidelines.
One upside of the court case for e-gold users is that the judge has rejected any charges of fraud regarding the e-gold user agreement and has confirmed the veracity of the company's gold reserve audit.

In November Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention. He had faced a maximum sentence of 20 years in prison and a $500,000 fine. Judge Rosemary Collyer said the men deserved lenient sentences because they did not intend to engage in illegal activity. Jackson's lawyer claimed Jackson was spared the heavier fine because he is deeply in debt - the Judge said "Dr. Jackson has suffered, will continue to suffer, and may never be successful with E-Gold". Reid Jackson, Douglas Jackson's brother, and E-Gold director Barry Downey were each sentenced to three years of probation, 300 hours of community service, and ordered to pay a $2,500 fine and a $100 assessment fee each.

Security

As with any online payment system, e-gold is vulnerable to various threats, notably phishing
Phishing
Phishing is a way of attempting to acquire information such as usernames, passwords, and credit card details by masquerading as a trustworthy entity in an electronic communication. Communications purporting to be from popular social web sites, auction sites, online payment processors or IT...

 (for example, forged emails asking for login details) and malware
Malware
Malware, short for malicious software, consists of programming that is designed to disrupt or deny operation, gather information that leads to loss of privacy or exploitation, or gain unauthorized access to system resources, or that otherwise exhibits abusive behavior...

 (such as keystroke logging
Keystroke logging
Keystroke logging is the action of tracking the keys struck on a keyboard, typically in a covert manner so that the person using the keyboard is unaware that their actions are being monitored...

 spyware
Spyware
Spyware is a type of malware that can be installed on computers, and which collects small pieces of information about users without their knowledge. The presence of spyware is typically hidden from the user, and can be difficult to detect. Typically, spyware is secretly installed on the user's...

).

e-gold offers no protection whatsoever if an attacker succeeds in obtaining the user's e-gold account number, the user's e-gold password, and access to the user's registered email account. Any losses resulting from a security breach cannot be undone since transfers are non-reversible. If funds are stolen, e-gold will not block a recipient's account without being issued with a court order.

In 2005, the Los Angeles Times
Los Angeles Times
The Los Angeles Times is a daily newspaper published in Los Angeles, California, since 1881. It was the second-largest metropolitan newspaper in circulation in the United States in 2008 and the fourth most widely distributed newspaper in the country....

 reported on a specially created Trojan horse
Trojan horse (computing)
A Trojan horse, or Trojan, is software that appears to perform a desirable function for the user prior to run or install, but steals information or harms the system. The term is derived from the Trojan Horse story in Greek mythology.-Malware:A destructive program that masquerades as a benign...

 that compromised "dozens" to "the low hundreds" of e-gold accounts. While Trojans usually silently record the login details of the unsuspecting user, the Trojan in question (Win32.Grams) emptied the accounts themselves by transferring the contents to the attacker's accounts.

e-gold recommends that users without a disability should always use a mouse-driven virtual keyboard
Virtual keyboard
A virtual keyboard is a software component that allows a user to enter characters. A virtual keyboard can usually be operated with multiple input devices, which may include a touchscreen, an actual keyboard and a computer mouse.- Types :...

 called "SRK Passphrase Entry" when logging in. Other security recommendations from e-gold include restricting access to a single IP address or browser (Account Sentinel) plus using Mozilla Firefox
Mozilla Firefox
Mozilla Firefox is a free and open source web browser descended from the Mozilla Application Suite and managed by Mozilla Corporation. , Firefox is the second most widely used browser, with approximately 25% of worldwide usage share of web browsers...

, a firewall and antivirus software
Antivirus software
Antivirus or anti-virus software is used to prevent, detect, and remove malware, including but not limited to computer viruses, computer worm, trojan horses, spyware and adware...

 

Regulatory challenges and shortcomings

e-gold Ltd. was registered in Nevis
Nevis
Nevis is an island in the Caribbean Sea, located near the northern end of the Lesser Antilles archipelago, about 350 km east-southeast of Puerto Rico and 80 km west of Antigua. The 93 km² island is part of the inner arc of the Leeward Islands chain of the West Indies...

, Lesser Antilles
Lesser Antilles
The Lesser Antilles are a long, partly volcanic island arc in the Western Hemisphere. Most of its islands form the eastern boundary of the Caribbean Sea with the Atlantic Ocean, with the remainder located in the southern Caribbean just north of South America...

 in 1999, but was temporarily removed from the register. e-gold cleared an administrative issue and as of July 14, 2006, it is properly registered in Nevis.

In September 2004, several Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

n based e-gold currency exchangers ceased operation as they did not hold an Australian Financial Services licence (AFSL)
Australian based digital currency exchangers that closed down voluntarily, due to the Australian Securities and Investments Commission
Australian Securities and Investments Commission
The Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...

 (ASIC) licencing requirements, included goldex.net, sydneygoldsales.com and ozzigold.com.

On 24 November 2006, e-gold suspended all accounts held by customers located in Iran
Iran
Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...

.

eBay policy

Beginning January 2006, eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...

 has restricted buyers and sellers from using many online payment systems and encouraged them to use Paypal
PayPal
PayPal is an American-based global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders....

, which is wholly owned by eBay. eBay specifically named e-gold as one of the online payment systems that will result in them cancelling a seller's account if used. eBay cited e-gold's policy of non-reversible transactions as a detriment to the buyer experience.

E-Gold Reopens Access

On December 31, 2010, e-gold initiated a value access plan that was approved by relevant governmental authorities in the U.S. Users would have access to the value in their accounts after submitting additional information to e-gold, and after a review of this information by the Court-appointed Claims Administrator and the U.S. Government.

External links

  • e-gold directory and forums
  • Digital Gold Currency Online Magazine
  • The Improbable Rise and Fall of E-Gold - Wired article (June 2009)
  • Department of Justice Indictment - Press release of the DOJ
    United States Department of Justice
    The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...

     indictment (April 2007), plus response by Douglas Jackson
    Douglas Jackson (businessman)
    Douglas Jackson is the chairman and co-founder of e-gold.Jackson, educated as a medical doctor, previously served as a major in the United States Army Medical Corps at the Brooke Army Medical Center at Fort Sam Houston, Texas , and has previously practiced as an oncologist.- External links :*...

  • e-gold Gets Tough on Crime - Wired News
    Wired News
    Wired News is an online technology news website, formerly known as HotWired, that split off from Wired magazine when the magazine was purchased by Condé Nast Publishing in the 1990s. Wired News was owned by Lycos not long after the split, until Condé Nast purchased Wired News on July 11, 2006...

     article (December 2006)
  • Holy_father Delivers Rootkits to the Masses - InformationWeek
    InformationWeek
    InformationWeek is a weekly print magazine, an online site with corresponding face-to-face and virtual events, and research. It is headquartered in San Francisco, California and was first published in 1979 by CMP Media, later called CMP Technology. On February 29, 2008, CMP Technology was...

     on rootkit
    Rootkit
    A rootkit is software that enables continued privileged access to a computer while actively hiding its presence from administrators by subverting standard operating system functionality or other applications...

    s (January 2006), plus response by Douglas Jackson
  • Gold Rush - BusinessWeek
    BusinessWeek
    Bloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. It is currently headquartered in New York City.- History :...

     online article (January 2006), plus
  • Indomitus report on e-gold - by James Eric Davidson (January 2005)
  • Beware of e-gold - THE HINDU Business Line (October 2002)
  • In Gold We Trust - Wired
    Wired (magazine)
    Wired is a full-color monthly American magazine and on-line periodical, published since January 1993, that reports on how new and developing technology affects culture, the economy, and politics...

     magazine article (January 2002)
  • Exchange rates E-gold and other electronic money
  • Would a Global Crisis Make e-gold Glitter? - BusinessWeek
    BusinessWeek
    Bloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. It is currently headquartered in New York City.- History :...

    online article (April 2000)
  • Description E-gold registration process
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
x
OK