
Bullion and Bandits: The Improbable Rise and Fall of E-Gold - mjfern
http://www.wired.com/threatlevel/2009/06/e-gold/
======
patio11
E-Gold was Paypal... minus a few hundred million in VC funding and savvy.

Paypal actually spent a few hundred million on savvy -- in learning to defang
fraud and abuse of the system. They also gave the finger to financial
regulators for a few years, a decision which would probably have resulted in
monitoring bracelets for all concerned if they had not been funded and then
acquired. (If you have $200 million, you are ipso facto not a criminal
enterprise, right? Even if money launderers happen to use your service.)

The protestations of ignorance on the part of e-gold are, ahem, a little rich.
Crikey, I was in high school back when they launched and I understood they
were a hive of scum and villainy with one look at the people advertising them
-- how could they possibly _not_ have understood that?

------
Luc
I once hacked together an automatic e-gold payment system for some guy in
Egypt who had to do thousands of tiny payments in the next 24 hours (must have
been some kind of pyramid scam or one of those 'high yield investment' schemes
popular among a certain e-gold public - I didn't realize this when I took the
job, I just saw the cool challenge). Of course I got paid $2000 through
e-gold, all very hush hush.

~~~
mahmud
you have been an accessory to commerce!

------
TrevorJ
Whoever controls currency, has the power. This fact alone assures that
governments will never allow wholesale the wholesale success of any company
that seeks to usurp state-governed currency models as the de-facto means of
transactional debt payment. If it wasn't illegal in the first place and he had
become successful, it would have been outlawed at some point.

~~~
ajross
To be fair: this wasn't a purely innocent web startup. Whether intended or
not, it _was_ a money laundering operation for _real_ criminals. That's just
not something that the economy or our governments should be expected to allow
out of a sense of "justice" or "freedom".

For known operations, like banks, we have regulations limiting their behavior
to curb exactly this kind of problem. Regulation couldn't act here because of
the newness and complexity, so law enforcement had to. And law enforcement is
ugly, and sometimes confused. And sometimes innocent* people get caught up,
and we need to sort things out.

When that happens, we have things like grand jury indictments and jury trials
that are intended to help out. And that process worked. He ultimately pled
guilty and received what seems to me like a comparatively minor sentence (no
jail time, 6 months house arrest, 36 month supervision).

Could thing have been handled better? No doubt. But, really: does anyone think
that allowing E-Gold to continue to operate as-is was a better option?

* Innocent-ish, I guess. I have a hard time believing that this guy was a naive as the story paints him. I mean, how can you _not_ suspect criminal activity in an operation like this?

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JulianMorrison
Their more careful rival, GoldMoney, still exists.

<http://goldmoney.com/>

<http://en.wikipedia.org/wiki/GoldMoney>

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nazgulnarsil
_despite the consensus among professional economists that a gold-standard
prevented governments from responding quickly to monetary crises; when an
economy faltered, treasuries couldn’t easily manufacture gold bars to
stimulate it._

this is a feature not a bug. the economists who support government monetarism
are shills.

~~~
davidw
No, the "shills" are the ones that don't agree with _me_.

(Which is the reason these topics get avoided here: like everywhere else on
the internet, they turn smart people into name-callers)

~~~
nazgulnarsil
random internet people are different from trained economists. the economists
know better. go talk to an economics professor or a professional economic
analyst. I have yet to encounter one who wouldn't call the major economic
advisers political shills.

~~~
philwelch
I've yet to encounter very many who actually like the gold standard, unless
you're talking about self-trained "economists" who learned little more than a
series of reasonable-sounding economic arguments for anarcho-capitalism.

------
asciilifeform
Our rulers will never permit untraceable electronic currency to exist. This is
not only because it would hinder taxation, but also because it would enable
this:

<http://cryptome.info/ap.htm>

------
rw
> He maintains that he would have done what authorities now want him to do, if
> they’d just worked with him to devise a plan, instead of treating him like a
> criminal.

Given the depiction of this guy's persona, this statement seems accurate. Why
would the Feds nail him like this?

~~~
johnnybgoode
To set an example?

------
paulbaumgart
He really operates out of Florida? That seems kinda nuts.

The guys in Cryptonomicon did it better- at least it was in a jurisdiction
where enough money buys a lot of immunity.

~~~
nazgulnarsil
This story is a good example of naively believing that law is about justice.
It doesn't matter whether or not you're technically breaking the law. If the
powers that be take a dim view of your outfit something will be drummed up.

~~~
dantheman
I think the worst part is that he was cooperating with them, and trying to do
the right thing, but instead of them helping him to obey the law they were
carrying out an investigation.

~~~
michael_dorfman
Really? I think the worst part is that he operated his business without regard
to either government regulations or his user's TOS, and seemed to think it
would all work out ok for him because he meant well.

I'm amazed the word "hubris" didn't come up in every second paragraph.

~~~
dantheman
Agreed, breaking his TOS was wrong; but without regard to government
regulation is how almost all businesses start & with its ever growing size it
becomes harder and harder become and maintain compliance. I believe early
paypal was also operating without regard to government regulations for quite a
long time.

~~~
michael_dorfman
Call me old-fashioned, but operating without regard to government regulation
is never a good idea, unless you don't mind ending up in prison. If this guy
was taking that as a calculated risk, well, he lost. The fact that PayPal got
away with it doesn't change things-- some folks get lucky, but luck is not a
viable strategy.

~~~
randallsquared
_Call me old-fashioned, but operating without regard to government regulation
is never a good idea_

You're old-fashioned.

Operating in _violation_ of government regulation is often a bad idea, but
operating without regard to it is the only way you can start a business at
all. No one has the money to do an exhaustive review to ensure their own
compliance with all regulations, not least because after they did this, they'd
be spending yet more money complying, while all their competitors sailed along
in ignorance and made more money.

The first startup I was involved with was a competitor to e-gold, and one of
the conditions of my relationship with them was that I had to move outside the
US while I was involved on a day-to-day basis with their hardware and
software, because they saw this coming (this was 2001). Of course, being so
careful cost lots of extra money, and that helped sink them before they ever
really became a noticeable competitor.

~~~
davidw
I think a lot of people might skirt or ignore 'the letter of the law' kinds of
regulations, but ignoring the spirit of the law is more likely to be a dubious
way to start a business, and often a good way to get in real trouble, rather
than just harassed by bureaucrats.

------
ilamont
I did some reporting on another digital gold currency company called e-bullion
that imploded after the cofounder's wife (who was the other cofounder) was
murdered in Los Angeles last year:

[http://www.thestandard.com/news/2008/08/22/e-bullions-
lawyer...](http://www.thestandard.com/news/2008/08/22/e-bullions-lawyer-calls-
governments-actions-extreme)

A lot of people, ranging from participants in bogus HYIP schemes to gold bugs
who want to invest in gold without physically handling bullion, got burned
when the FBI and IRS raided e-bullion's offices and shut down the website.

The money is now being fought over by the cofounder, the estate of his wife,
and the feds, who say they want to appoint a receiver to return the money to
depositors.

------
pelle
I wrote a piece on them last year which also had some good discussions on it
on they HN page:

<http://news.ycombinator.com/item?id=253569>

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vaksel
the fall part wasn't that improbable.

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lacker
Too bad the laws aren't more clear on this issue. I wonder if at some point
giving someone some coins in World of Warcraft will be considered unregulated
money transfer.

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zackattack
I knew a kid in high school who used to buy marijuana from Amsterdam over the
internet using e-gold

------
tphyahoo
if you want anonymous payments, just use hawala :)

