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United States v. E-Gold Ltd.

July 20, 2007

UNITED STATES OF AMERICA
v.
E-GOLD LIMITED, GOLD & SILVER RESERVE, INC., DOUGLAS L. JACKSON, BARRY K. DOWNEY AND REID A. JACKSON, DEFENDANTS.



The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge

MEMORANDUM OPINION

The criminal Defendants in this case -- two corporations and three individuals -- have sought a stay of the prosecution while they appeal this Court's denial of their motion to release funds seized by the Government. See June 22, 2007, Minute Entry Order. The Court admittedly was so inclined at the end of the motions hearing on Defendants' Motion to Vacate Seizure Warrant and to Modify Restraining Order and Request for an Evidentiary Hearing, but after careful review of the parties' briefs, it concludes that there is no basis to grant a stay pending appeal.

Any stay pending appeal must be evaluated in terms of four factors identified by the D.C. Circuit:

(1) Ha[ve Defendants] made a strong showing that [they are] likely to prevail on the merits of [their] appeal? Without such a substantial indication of the probable success, there would be no justification for the court's intrusion into the ordinary processes of administration and judicial review. (2) Ha[ve the Defendants] shown that without such relief, [they] will be irreparably injured? The key word in this consideration is irreparable. . . . The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm. . . . (3) Would the issuance of a stay substantially harm other parties interested in the proceedings? . . . Relief saving one claimant from irreparable injury, at the expense of similar harm caused another, might not qualify as the equitable judgment that a stay represents. (4) Where lies the public interest?

Virginia Petroleum Jobbers Assn v. FPC, 259 F.2d 921, 925 (D.C. Cir. 1958); see Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977) (reaffirming Virginia Petroleum Jobbers); see also D.C. Cir. Rule 8(a)(1).*fn1 These factors preclude granting a stay of the criminal prosecution.

I. BACKGROUND FACTS

Defendant corporations operate a system that allows the buying and selling of gold and other precious metals on the Internet under the rubric of "e-gold." The Government contends that e-Gold Ltd. and its co-defendant Gold & Silver Reserve, Inc., d/b/a Omnipay, operate an unregistered and unlicensed money exchange business that also launders money. Defendant corporations and the three individual Defendants -- officers and directors of the two corporations -- vehemently disagree. A very short description of the e-Gold process may put light on the dispute.

E-Gold holds in trust gold bullion and other precious metals in foreign depositories.

See Defs.' Status Report and Notice of Compliance ("Status Report") [Dkt. #28] at 6. A buyer on the Internet can use an exchange service to buy e-gold by submitting a deposit in the buyer's own currency to an exchange service, which then purchases the appropriate amount of gold, kept in an e-gold account. See Status Report at 9. The buyer then orders an appropriate amount of its e-gold to be transferred into the e-gold account of a seller for whatever purchase is being made. See id. at 7. The seller needs an exchange service to convert the e-gold from its account into the seller's currency. See id at 9. Gold & Silver Reserve ("G&SR") operates an exchange service, Omnipay, which provides one method to convert currency to e-gold and back again. See id. E-Gold insists that it cannot be an illegal money exchange business because its does not deal in cash. See Defs.' Reply Memo. in Supp. of Mot. to Vacate Seizure Warrant and to Modify Restraining Order and Request for an Evidentiary Hearing ("Defs.' Reply") [Dkt. #42] at 6 n. 3; see also Status Report at 9.

The e-Gold and G&SR operations have been under intense Government scrutiny and the parties have been steeped in litigation since December 2005. Immediately before the criminal indictment was unsealed, the Government obtained seizure warrants from this Court to seize certain specified accounts at e-Gold and G&SR, most importantly for present purposes the two operating accounts by which Omnipay conducted its exchange business. See Defs.' Mot. to Vacate Seizure Warrant and to Modify Restraining Order and Request for an Evidentiary Hearing ("Defs.' Mot.") [Dkt. #35] at 2-3.

Defendants filed a motion for a Monsanto*fn2 hearing and argued to the Court that it should hold a two-day hearing to determine if the Indictment was properly obtained. The Court held that Defendants had to make a preliminary showing of: (1) a bona fide reason to believe that the grand jury erred in determining that the restrained assets constitute or are derived, directly or indirectly, from gross proceeds traceable to the commission of the alleged offenses and (2) that the Defendants have no assets, other than those restrained, with which to retain private counsel and provide for themselves and their families. See United States v. Jones, 160 F.3d 641, 647 (10th Cir. 1998) (noting that "[d]ue process does not automatically require a hearing and a defendant may not simply ask for one."); see also United States v. Farmer, 274 F.3d 800, 803, 806 (4th Cir. 2001) (granting a pretrial hearing where the trial court credited the defendant's initial representations that the government had seized all his substantial assets and because the government's own agents acknowledged that many seized assets were unrelated to the alleged criminal conduct); see also United States v. Jamieson, 189 F. Supp. 2d 754, 757 (N.D. Ohio 2002) (noting that a defendant must first make a showing, or at least a reasonable representation, that no other assets are available to support himself and his family and to retain private counsel and that the grand jury erred in its forfeiture provisions of the indictment because certain assets are exempt from the restraining order).*fn3 Defendants were totally unable to make any showing of any kind that the Omnipay operating accounts did not contain monies entirely resulting from the exchange business which the Government asserts is an unregistered and unlicensed money exchange business.*fn4 The Court therefore refused to quash the warrants or order the release of any seized funds. That decision is now on appeal to the D.C. Circuit, where the Defendants have sought expedited consideration.*fn5 They now seek a stay of the criminal prosecution pending a decision on appeal.

II. ANALYSIS

Defendants argue that their Sixth Amendment right to counsel and their Fifth Amendment right to due process of law are jeopardized by the Government's seizure of the Omnipay operating accounts. They assert that the individual Defendants are unable to retain counsel of their choice because the e-Gold and GS&R/Omnipay operation is so hamstrung by the Government's actions that their very incomes are substantially reduced below levels needed for living expenses. In addition, e-Gold and GS&R, which, as corporations, are not entitled to appointed counsel, argue that they cannot defend themselves without access to these funds.*fn6

The Government cites United States v. Wittig, No. 03-40142, 2005 WL 1385666 (D. Kan. June 7, 2005), as the only case on point to the instant facts. In Wittig, criminal defendants filed a motion to stay the criminal case pending their appeal of the district court's reinstatement of a restraining order requested by the Government. The court denied the stay, finding that the defendants had not demonstrated a likelihood of success on appeal because they had not challenged the evidence in the record that the property was forfeitable ...


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