e-gold account

e-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and is a system which allows the instant transfer of gold ownership between users. e-gold Ltd. is incorporated in Nevis, Lesser Antilles.

According to the company's website, as of April 2007, e-gold had 112,188 oz (3,489,436 grams) of gold and 138,567 oz (4,309,923 grams) of silver in storage, which is worth approximately US$86 million. There are typically 66,000 e-gold spends each day totalling 15,000 oz (460 kilograms), which is about US$10.5 million. There are over three million e-gold accounts of which about one quarter are active.

On 27 April 2007, a federal grand jury in Washington, D.C. indicted e‑Gold Ltd and its owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business. e-gold, however, considers the charges completely groundless, and has responded to the allegations in their own press release.

 

• 1History
• 2Crime and fraud
• 3Criticisms of e-gold
• 42008 court trial
• 52007 indictment
• 6References

[top]History

e-gold was founded in 1996 by Dr. Douglas Jackson and Barry K. Downey. Transactions using e-gold have grown dramatically since 2005. The total amount of gold bars (over three tonnes) in the e-gold system is approaching the size of the national reserves of smaller countries. e-gold now generates a substantial income from spend and storage fees — there is a charge of a few cents to make each e-gold "spend" and e-gold itself now earns well over a million USD per year from fees.

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. That represents a compound growth rate of approximately 55% per annum. This high growth rate has been sustained by e-gold almost since inception.

[top]Crime and fraud

e-gold has been perceived as the medium of choice for many online con-artists, with pyramid schemes and High Yield Investment Programs ("HYIPs") commonplace. This has been blamed on e-gold's policy of irreversible transactions. However, e-gold is now blocking accounts where fraud is proven or suspected.

e-gold and OmniPay have also been accused of being a medium for money laundering, although this is questionable given that there were only 24 customer accounts holding over 10kg of gold (approximate value $200,000) by April 2006. As digital gold currency providers are not banks, they are not legally required to perform various sorts of "know your customer" background checks. However, many legitimate e-gold exchange providers, for example GoldNow, may require a higher level of identification, generally more intrusive than a bank, for security purposes.

Opening an account at e-gold... Internet payments, 100% backed by gold takes only a few clicks of a mouse. Customers can use a false name if they like because no one checks. With a credit card or wire transfer, a user buys units of e-gold. Those units can then be transferred with a few more clicks to anyone else with an e-gold account. For the recipient, cashing out — changing e-gold back to regular money — is just as convenient and often just as anonymous.

In January 2006, BusinessWeek reported on the use of the e-gold system by ShadowCrew, an 4000-strong international crime syndicate involved in massive identity theft 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, Chairman and founder, Dr. Douglas 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, FTC, IRS, DEA, SEC, USPS, and others."

In August 2006, WORLDLawDirect lawyers announced e-gold Ltd. officials and their legal counsel to be the subject of a U.S. Federal Court subpoena. They believe e-gold Ltd. 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 (Solidinvestment.com) large scale HYIP scam.

[top]Criticisms of e-gold

Non-reversible transactions

Unlike credit cards, there is no way of having transactions reversed, even in case of a legitimate error or an unauthorized expenditure. e-gold's Terms of Use stipulate that all transactions are final and e-gold cannot be held responsible for any spend. In this respect, an e-gold spend is more akin to a cash transaction (except for the fact that there is a fee levied) while PayPal transfers, for example, could be considered more similar to credit card transactions.

Security

As with any online payment system, e-gold is vulnerable to various threats, notably phishing (for example, forged emails asking for login details) and malware (such as keystroke logging spyware).

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
• access to the user's registered email account (web-based email accounts without a secure login are especially vulnerable)

as the e-gold account will then be completely open for malicious use.

All three pieces of information can be gathered with a trojan keylogger which monitors accesses to the e-gold web-site. All online services are affected by this security issue, but what makes e-gold especially vulnerable is that any losses resulting from a security breach cannot be undone since transfers are non-reversible and, unlike online banking, e-gold do not provide any insurance against such abuse. Also if funds are stolen, e-gold will not block a recipient's account without being issued with a court order. Since there is a lag time in obtaining a court order, the stolen funds can easily be withdrawn from the offending account and the e-gold system, rendering the recovery of any funds virtually impossible. This is not clearly stated in e-gold's user agreement, but an abused user will receive the following explanation from the company:

Unfortunately we will not be able to refund your money because all e-gold spends are final and not reversible as stated in the e-gold account user agreement. e-gold is also contractually prohibited from freezing e-gold accounts or releasing e-gold account information in the absence of a court order or subpoena. You might want to consider obtaining some combination of help from a legal professional or law enforcement to obtain a court order, if the size of your loss warrants expenditure of your resources (time and money) to resolve.

In 2005, the Los Angeles Times reported on a specially created trojan horse 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.

To partly counter the threat from keystroke logging it is imperative that users never enter their password via a keyboard when logging-in, or authorising spends, if the computer they are using is potentially infected. Instead, users without a disability should always use a mouse and the popup window provided (SRK Passphrase Entry). However this is not a panacea as advanced spyware can take a screen shot and read the mouse clicks. Other security recommendations from e-gold include restricting access to a single IP address or browser (Account Sentinel) plus using Mozilla Firefox, a firewall and antivirus software.

Some competing DGCs offer similar features to combat typical, simple, "mass" phishing attacks and keystroke loggers. e-Bullion utilizes a two-factor authentication security token from CRYPTOCard, an alternative to RSA's SecurID. Pecunix has an extremely secure, somewhat complicated, log-in procedure. 1mdc has a simple PIN-pad addition. GoldMoney allow user certificates to be used. Most systems also include an optional or compulsory "email confirmation" type of process when logging-in or authorising spends.

[top]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."[20] In July 2008 the company and its three directors pled guilty to money laundering.[1] 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.[21] 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.

References
1. a b Grant Gross (2007-07-22). "IDG News Service Internet currency firm pleads guilty to money laundering". Internet currency firm pleads guilty to money laundering | The Industry Standard.

20. Linda Friedman Ramirez (2008-05-13). "International crimes: E-currency subject to licensing requirements". EXTRADITION AND FOREIGN EVIDENCE: International Crimes: E-Currency subject to Licensing Requirement.

21. Stephanie Condon (2008-11-20). "Judge spares E-Gold directors jail time". CNET. Judge spares E-Gold directors jail time | Politics and Law - CNET News.

Source:
e-gold - Wikipedia, the free encyclopedia

[top]2007 indictment

UPDATE: July 23, 2008

E-Gold pleads guilty to money laundering

Source: Robert Lemos, SecurityFocus 2008-07-23

“From our perspective, the possibility of resolving the legal case in a manner that allows for a path forward, that provides an explicit roadmap enabling e-gold to emerge as a regulated financial institution in full compliance with U.S. law is greatly preferred over continued conflict.” Dr. Douglas Jackson, founder of E-Gold, on his plea agreement with U.S. investigators

On Monday, the Nevis, West Indies, company, its founder and two senior directors all agreed to plead guilty to various charges related to money laundering and the operation of an unlicensed money transfer business. The agreement ends a nearly four-year investigation into the company and its digital currency service, which -- because of the anonymity it provided account holders -- became a popular method for cybercriminals to turn ill-gotten proceeds into clean cash.

"The operations of E-Gold Ltd. and the other defendants undermined the laws designed to maintain the integrity of our financial system and created opportunities for criminal activity," Jeffrey A. Taylor, U.S. Attorney for the District of Columbia, said in a statement announcing the agreement. "Because of the successful prosecution of these defendants, digital currency providers everywhere are now on notice that they must comply with federal banking laws or they will be subject to prosecution."

Under the terms of the agreement, E-Gold's founder, Dr. Douglas Jackson of Melbourne, Florida, and two principal directors will plead guilty to charges of operating an unlicensed money transfer business, according to the statement released by the U.S. Department of Justice. Jackson will also plead guilty to conspiracy to launder money. Both E-Gold and its corporate affiliate Gold & Silver Reserve, a Delaware corporation, have also agreed to plead guilty to conspiracy to launder money.

According to the Justice Department, Jackson faces a sentence of up to 25 years in prison and a fine of up to $750,000, while the two directors -- Barry Downey, 48, of Baltimore, and Reid Jackson, 45, of Melbourne -- could serve up to 5 years in prison and fines up to $25,000 each. In addition, the companies have agreed to forfeit $1.75 million in profits and could be fined up to a maximum of $3.7 million. In addition, the companies will begin to comply with all application federal and state laws governing money transfer businesses, hire a consultant to aid in the process of adding additional security to its systems, and contract with an auditor to verify the companies' claims that transactions are backed by gold, the U.S. Department of Justice said in its statement.

Despite the guilty pleas, the founder has vowed that the service will continue to operate.

In a statement titled A New Beginning and posted the company's blog, Dr. Jackson promised that the company will redesign its service to be less hospitable to criminals.

"The resolution of the criminal case ... provides for a second chance, an opportunity to address the flaws embedded in the e-gold system and to transform the 'e-gold Operation' into the institutions (sic) I, the other directors, and our long-suffering employees and contractors have always envisioned, one that serves to advance the material welfare of mankind," Dr Jackson wrote.

In April 2007, the United States indicted E-Gold and its founders, charging the company with offenses related to money laundering. Digital cash services, such as E-Gold, have increasingly been used by cybercriminals as a way to launder money and to accept payment for delivering cybercrime services and malicious code.

A number of U.S. agencies cooperated to investigate E-Gold, including the U.S. Secret Service, the Internal Revenue Service's Criminal Investigation unit and the FBI.

Read more:
E-Gold pleads guilty to money laundering


The essence of the allegations in the indictment is two-fold: 1) e-gold is an unlicensed money transmitting entity as defined by Title 18 USC Section 1960. 2) e-gold was a de facto means of moving money from illegal activities to wit: HYIP's which are Ponzi scams, credit card and identity fraud sites and retailers of child pornography.

The indictment alleges (paragraph 34) that the defendants knew of the activities associated with the accounts and noted those activities in the e-gold database with notations such as: "child porn", "Scammer", and "CC fraud."

The indictment further alleges that knowing that certain accounts were associated with illegal activities e-gold placed "value limits" on the accounts and suggested that the account holders open new accounts and placed no restrictions on the customer's ability to move funds out of the account.

Federal Grand Jury indicts E-Gold

April 30, 2007:

A federal grand jury in Washington, D.C. has indicted two companies operating a digital currency business and their owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business, Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Attorney for the District of Columbia Jeffrey A. Taylor announced today.

The four-count indictment, handed down on April 24, 2007, and unsealed today, charges E-Gold Ltd; Gold & Silver Reserve, Inc.; and their owners Dr. Douglas L. Jackson, of Satellite Beach, Fla.; Reid A. Jackson, of Melbourne, Fla.; and Barry K. Downey, of Woodbine, Md., each with one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.

[top]References

Department of Justice Indictment - Press release of the DOJ indictment (April 2007), plus response by Douglas Jackson

e-gold Gets Tough on Crime - Wired News article (December 2006)

Holy_father Delivers Rootkits to the Masses - InformationWeek on rootkits (January 2006)

Gold Rush - BusinessWeek online article (January 2006), plus response by Douglas Jackson

Indomitus report on e-gold - by Jim Davidson (January 2005)

Beware of e-gold - THE HINDU Business Line (October 2002)

In Gold We Trust - Wired magazine article (January 2002)

Would a Global Crisis Make e-gold Glitter? - BusinessWeek online article (April 2000)



 

 

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