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In re Downey

Court of Appeals of Columbia District

June 29, 2017

In re Barry K. Downey, Respondent. A Member of the Bar of the District of Columbia Court of Appeals (Bar Registration No. 416968)

          Argued December 5, 2016

         On Report and Recommendation of the Board on Professional Responsibility (BDN-338-08)

          William R. Ross, Assistant Disciplinary Counsel, with whom Wallace E. Shipp, Jr., Disciplinary Counsel at the time the brief was filed, Jennifer P. Lyman, Senior Assistant Disciplinary Counsel, and Jelani Lowery, Senior Staff Attorney, were on the brief, for the Office of Disciplinary Counsel.

          Aron U. Raskas for respondent.

          Before Fisher, Associate Judge, and Washington [*] and Ruiz, Senior Judges.

          FISHER, ASSOCIATE JUDGE.

         The Board on Professional Responsibility ("Board") recommends that Respondent Barry K. Downey receive an informal admonition. Disciplinary Counsel argues for disbarment or, at minimum, a three-year suspension with reinstatement conditioned on proof of rehabilitation. These widely differing recommendations arise from the fact that Respondent pled guilty to a felony (albeit, a strict liability offense) but disputes Disciplinary Counsel's allegations that he has been dishonest in explaining the circumstances of that crime and that he committed a crime of moral turpitude. Applying the enhanced burden of proof that Disciplinary Counsel bears and deferring to credibility determinations and factual findings supported by the record, as we are required to do, we adopt the recommendation of the Board.

         I. Background

         Respondent Downey has been a member of the District of Columbia Bar since 1989, focusing his practice on issues related to the Employee Retirement Income Security Act of 1974 ("ERISA"). In the mid-1990s, a friend of Respondent developed a method to use digital currency backed by gold bullion to facilitate monetary transactions over the Internet. This innovation led to the creation of two companies known as Gold & Silver Reserve ("GSR") and E-Gold (collectively "E-GOLD"). Respondent invested in E-GOLD and became Director of E-Gold and Secretary, Vice-President, and Director of GSR.

         In 1995, before investing in E-GOLD, Respondent informally consulted a corporate lawyer named David Seidl. Respondent later testified that Mr. Seidl orally advised that E-GOLD was not "doing banking" and was not "subject to banking regulations." Mr. Seidl does not appear to have charged a fee or rendered any written opinion.

         Five years later, the District of Columbia enacted a statute requiring a license to engage in a money transmitting business. See D.C. Code § 26-1002 (2012 Repl.). Then, in 2001, the Patriot Act changed provisions of the Bank Secrecy Act related to the licensing of money transmitting businesses. See 18 U.S.C. § 1960 (a) (2001). In August or September 2002, Respondent sought legal advice from the law firm of Drinker Biddle & Reath about whether the Patriot Act provisions applied to E-GOLD.

         In March 2003 Drinker Biddle sent Respondent a memorandum stating that E-GOLD "may wish to consider" whether to register GSR with federal and state authorities. It warned that GSR's operations "may lead it to be categorized as" an entity that would be "vulnerable to a regulatory claim that it is an unregistered money service business." However, the memorandum also stated that "there is no clear answer" to whether E-GOLD qualified as a "financial institution" covered by the Patriot Act, and "there is no definition that completely captures" E-GOLD's business. The memorandum recommended that E-GOLD consider "whether the benefits" of reaching out to the United States Treasury Department for clarification would "outweigh[] the risks." Regarding state law, the memorandum's appendix noted that "a handful of states have begun to license and regulate such diverse entities as . . . non-bank stored-value issuers, Internet bill payment services and Internet money transfer systems," and that the Uniform Money Services Act had apparently "expand[ed] the term 'money service business.'" It concluded that the companies "may want to survey the laws of the various states to ensure that GSR is not in violation of any licensing requirements for a [money service business]." Respondent believed that the memorandum contained several factual inaccuracies, and he testified that he "did not view [it] as advice on anything." Respondent wanted Drinker Biddle to correct and clarify the memorandum, but he did not receive a revised version.

         In or around January 2005, Respondent hired attorney Mitchell Fuerst to advise E-GOLD. Respondent later testified that Mr. Fuerst believed that E-GOLD was not required to register as a money transmitter. By January of the next year, the government had brought a civil forfeiture action against E-GOLD claiming that certain funds that were being transmitted through its service were the proceeds of money laundering. Mr. Fuerst argued that GSR was not a "money transmitting business" or "domestic financial institution" required to have a license under the Patriot Act. Respondent later testified that these arguments were consistent with Mr. Fuerst's previous advice.

         In 2007 the United States charged E-GOLD, Respondent, and other individuals with violations of federal and District of Columbia criminal laws, including conspiracy to commit money laundering and operation of an unlicensed money transmitting business. The government alleged, among other things, that the businesses and the individuals had conspired to conduct financial transactions that involved the proceeds of unlawful activity such as child exploitation and fraud. Respondent pled guilty in the United States District Court for the District of Columbia to a felony violation of D.C. Code § 26-1002, a strict liability offense which prohibits operation of a money transmitting business without a license. The indictment asserted that Respondent committed this crime between 2002 and 2003, and Respondent agreed to a Statement of Offense that gave examples of transactions during those years. As part of a plea bargain, the government dismissed the remaining charges against Respondent, including conspiracy to commit money laundering.

         At sentencing, Respondent told Judge Rosemary Collyer that he "did not intend" to violate the law regarding licensing, but he admitted that he "was wrong[.]" Respondent noted that he did not have expertise in the relevant area and claimed that he had "looked to experts just like when others have looked to me on employee benefits issue[s]."

         Judge Collyer stated that she "believe[d] [Respondent] when he says that he didn't intend to violate the law." She recognized that Respondent and E-GOLD had been "in a slow prodding comfortable way trying to figure . . . out" their legal obligations, including by "meeting with the government . . . and trying to get advice[.]" Finally, she noted that Respondent "is clearly a good lawyer and a good husband and a good father and a good member of his church in his community and has no criminal history." Judge Collyer sentenced Respondent to 180 days' incarceration, suspended in favor of 36 months' probation, and imposed a $2,500 fine.

         Urging this court not to impose an interim suspension, Respondent continued to assert that he had sought legal advice. We decided to defer any sanction, citing, among other things, Respondent's "prior unblemished record as an attorney" and the "fact that his violation arose from conduct outside of his normal legal practice[.]" In re Downey, 960 A.2d 1135, 1137 (D.C. 2008). We also expressed concern that the length of an "interim suspension might exceed the sanction that will eventually be imposed[.]" Id.

         Recognizing the importance of developing a factual record, we directed the Board to determine whether Respondent committed a crime of moral turpitude. The Board found that the offense did not involve moral turpitude per se and referred the matter to a Hearing Committee to determine "whether Respondent's conviction involves moral turpitude on the facts[.]" Before Respondent's hearing, Disciplinary Counsel stated that he had not charged Respondent with committing a crime of ...


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