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United States v. E-Gold Ltd.


July 20, 2007


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


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.


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.


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 proceeds, but, rather, "continue[d] to refer back to their arguments that there is no legal basis for forfeiture of [the] asset." Id. at *3.

In addition, the Wittig court found that there was no legally cognizable threat of irreparable harm. The defendants argued that absent a stay, they would be denied the right to retain counsel of their choice, thereby compromising their Sixth Amendment rights. Id. at *3-4. The court concluded that Monsanto precluded this argument, since the Supreme Court held that a pretrial restraint of assets does not violate the Sixth Amendment, even when the defendant wants to use those assets to retain counsel, if the assets are fairly traceable to the alleged crminal conduct. Id. at *4; see Monsanto, 491 U.S. at 615.

Looking to the harm caused to the Government by a stay, the Wittig court recognized the Government's interest in the availability of its witnesses and the expeditious use of resources to conclude that the Government would be harmed by a stay. Id. at *5-6. The court also determined that the public's interest in a speedy trial weighed against a stay of the criminal case. Id. at *6.

A. Likelihood of Success on the Merits

These Defendants, as the Wittig defendants, argued only that there was no legal basis to seize their funds in the first place. When pressed by the Court to say whether any of the monies in the two operating accounts were not fairly traceable to the alleged illegal scheme, Defendants first answered yes and said they would present testimony from Douglas Jackson, a Defendant and founder of e-Gold. See June 21, 2007 Hearing Transcript at 60:3-23. After a break, and perhaps for tactical reasons so that Dr. Jackson would not be subject to cross-examination, Defendants abandoned this plan and resumed the argument that e-Gold and GS&R could not be an illegal money transmitting business because they did not accept cash, a point on which the Government makes no concession. See 18 U.S.C. § 1960; see also June 21, 2007 Hearing Transcript at 61-65 . The Court having already found against them on this mode of attacking the Indictment, the Defendants stood literally mute about the source of the monies in the operating accounts.

The purpose of the motions hearing was to determine if the Defendants could meet the standard necessary to obtain an evidentiary hearing. It was not to hear argument and rule on whether the crime is properly charged. This is exactly the inquiry the legislative history would foreclose:

[21 U.S.C. § 853, the criminal statute authorizing seizure of forfeitable property] does not exclude, however, the authority to hold a hearing subsequent to the initial entry of the order and the court may at that time modify the order or vacate an order that was clearly improper (e.g., where information presented at the hearing shows that the property restrained was not among the property named in the indictment). However, it is stressed that at such hearing the court is not to entertain challenges to the validity of the indictment. For the purposes of issuing a restraining order, the probable cause established in the indictment or information is to be determinative of any issue regarding the merits of the government's case on which the forfeiture is to be based.

S. Rep. 98-225 at 203 (1983), reprinted in 1984 U.S.C.C.A.N. 3182, 3386. Most courts adhere to this admonition. See Jones, 160 F.3d at 647-48; United States v. Moya-Gomez, 860 F.2d 706, 729 (7th Cir. 1988); United States v. 250 Lindsay Lane, No. Civ. A. 04-56, 2005 WL 1994762, at *6 (W.D. Ky. Aug. 16, 2005); United States v. Jamieson, 189 F. Supp. 2d 754, 757 (N.D. Ohio 2002). But see United States v. Monsanto, 924 F.2d 1186, 1200 (2nd Cir. 1991) (allowing district court to reconsider grand jury's finding of probable cause as to the offense).

Defendants argued that the Government's prosecution is just wrong as a matter of law and indicated an intention to file a motion to dismiss. The Court is quite willing to receive and consider such a future motion and the schedule for it has been set. See June 21, 2007 Hearing Transcript at 72:21-73:13. That future argument, however, has no bearing on whether Defendants showed at the motions hearing that they were entitled to a pre-trial evidentiary hearing. Inasmuch as the record indicates that all of the monies in the seized operating accounts are fairly traceable to the alleged illegal activity, Defendants' likelihood of success on appeal is very narrow. This factor counsels against a stay.

B. Irreparable Harm

Defendants contend that, without the seized funds, they will all be irreparably harmed because they will not be able to pay for counsel of their choice. Counsel of their choice is not a right of constitutional dimension. They have a right to "adequate representation," but they "cannot insist on representation by an attorney [they] cannot afford." Caplin & Drysdale v. United States, 491 U.S. 617, 624 (1989). "A defendant has no Sixth Amendment right to spend another person's money for services rendered by an attorney, even if those funds are the only way that that defendant will be able to retain the attorney of his choice." Id. at 625-26. This remains true even when a pretrial seizure is based upon a showing of probable cause. Id. at 632-33; United States v. Monsanto, 491 U.S. 600, 613 (1989).

Even more tellingly, Defendants have failed to demonstrate adequately that they are really without resources. The Government attributes significant assets available to Defendants, as described by Defendants themselves in their briefs and affidavits in support of the motion to vacate the seizure warrants:

$941,672.02 in liquid assets held by e-gold Ltd (Defs.' Reply Mem. in Supp. of Mot. to Vacate Seizure Warrant, Exh. 1, ¶ 7).

$895,939 in liquid assets held by G&SR (Defs.' Reply, Exh. 2, ¶ 10(d)).

$1,775,089 worth of e-gold contained in e-gold accounts held by e-gold Ltd and G&SR (Defendant Douglas Jackson's May 3, 2007 Affidavit on behalf of e-Gold)

$239,000 a month in income from operations (see Defs.' Reply, Exh. 1, ¶ 7; extrapolated from statement that Defendants earned $118,000 in fees/revenue over a 15-day period).*fn7

See Government's Mem. of P. & A. Regarding a Stay of this Criminal Case Pending an Appeal by Defs. ("Gov't Mem.") at 5-6. These assets total $3,856,669, which is remarkably close to the remarkable forecast by Defendants' attorneys that the criminal defense in this matter will cost $3,500,000.*fn8

It appearing that Defendants' legal argument is weak and their financial situation stronger than they admit, the Court finds no irreparable harm to support a stay.

C. Harm to the Government

The Government asserts that it would be harmed if a stay were entered in the criminal case. It identifies this harm as a delay in its ability to present its evidence as quickly as possible, possible reduction of witnesses' abilities to testify to the events in question, and greater expenditure of resources by the numerous Government offices involved in this prosecution. While not insignificant, these harms would not outweigh a decent showing of likelihood of success or irreparable harm. Since Defendants have failed on the two more important of the four factors to be considered, the Government's expression of harm to its interests counsels against a stay.

D. Harm to the Public Interest

The public has a strong interest in seeing justice rendered expeditiously. If Defendants are not guilty, the sooner that verdict is obtained, the sooner they will be able to turn their attentions back to business. If Defendants are guilty as charged, the sooner they cease operating, and profiting from, an admittedly unlicensed and unregistered business that allegedly launders money for criminals, the better off the public will be. This factor counsels against a stay.


For the reasons stated, the motion for a stay pending appeal of the Court's denial of Defendants' motion to amend the seizure warrants will be denied and Defendants' Motion for Oral Hearing on the Matter of the Entry of a Stay [Dkt. #50] will be denied as moot.

A separate Order accompanies this Memorandum Opinion.

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