Part V: … And the law won.
Customers weren’t particularly put off by the asset seizures in late 2005 (see Part IV) because during the year immediately following the forfeiture, e-gold bounced back with a record volume of transactions. Nevertheless, an indictment materialised in December 2006, and it came with a large helping of irony: the government pointed to the illicit behaviour of certain e-gold customers, all of whom had been flagged by the e-gold corporation themselves in their investigations and reported to the relevant authorities.
So the government was using the results of the corporation’s own criminal investigative work as the basis of the indictment against them. The e-gold entity was then effectively being charged with the crime of permitting their customers to commit crimes; and the founder, Dr Douglas Jackson, was facing the prospect of a lengthy stretch in prison.
Some way into the initial hearing, there was an intervention from a senior legal representative of the government present that suggested that things weren’t quite as bad as they seemed and things could probably be worked out. This provided a degree of reassurance and business resumed. However, six weeks later word got out suggesting that any possibility of a soft deal was being overruled from on high. The feeling was that the Department of Justice (DOJ) had decided to play hardball.
Sure enough, by April 2007 the corporation was hit with the holy trinity: they were indicted, subjected to yet another, this time colossal, asset seizure and slapped with a Post-Indictment Restraining Order (PIRO). To add insult to injury, the corporation was expected to execute the seizure on themselves and it extended to the balances of the larger independent exchange services that traded e-gold for conventional currency. Twenty million in e-gold assets were liquidated by the corporation and the dollars handed over. And all this before the criminal case had even begun.
The defendants, quite naturally, sought to get an evidentiary hearing and therefore an opportunity to present the facts before the judge who could more fully appreciate the scope of the e-gold enterprise. The prosecutors on the other hand moved to deny any such opportunity to examine the operation in depth and the judge ruled against an evidentiary hearing. The defendants appealed and the appeal court agreed that the defendants were entitled to an evidentiary hearing on the grounds of due process. Meanwhile the judge was requesting that the defendants file a motion to dismiss—the standard practice in these kinds of cases.
The defendants filed the motion, which unfortunately cannot dispute the factual truth of the allegations only that those ‘facts’ don’t in themselves constitute criminal wrongdoing. The judge disagreed emphatically with the motion, and the opportunity for a more fuller inquiry into the nature of the e-gold operation by way of an evidentiary hearing was squandered despite the successful appeal. The Judge was now unlikely to allow the defendants an opportunity to present evidence to counter the misrepresentation of e-gold by the DOJ and their agents in any upcoming trial. This left the defendants with little choice but to engage in a plea bargain.
One of the compelling reasons for pleading guilty when facing US criminal proceedings for serious white-collar crime are the sentencing guidelines (see Part IV), but there are also other lesser known reasons that impact sentencing and pertain to relevant conduct.
[T]he standard definition of relevant conduct holds a defendant liable for conduct beyond what is required to establish the conviction by including “all acts and omissions” committed during the commission of the offense of conviction. Further, where there are multiple participants, the standard definition of relevant conduct expands to include coconspirator liability, even in the absence of a conspiracy conviction or charge (Abrams, 2021).
A defendant can be held jointly accountable for the crimes of ‘co-conspirators’ even if the defendant wasn’t initially being charged with those crimes and the crime they are actually being charged with is relatively trivial. This is an especially useful mechanism for prosecuting senior organised crime figures on lesser, often multiple, charges that carry a greater likelihood of sticking while still allowing the full scope of their criminal enterprise to be considered when sentencing. However, when applied to other instances where the defendant is clearly not setting out to facilitate opportunities for criminal behaviour, even if that is an unintended consequence, the doctrine of relevant conduct lends itself to abuse by an overzealous prosecutor.
And when a juror is faced with deciding the verdict to a set of charges presented by the court, they may be inclined to choose a lesser charge thinking that, in their mind, it befits the gravity of a crime. They might be thinking that a slap on the wrist might be appropriate for certain types of crimes unknowing that the sentences can still escalate drastically due to the doctrine of relevant conduct. Hence, the pressure to plead guilty and negotiate a deal.
Ross Ulbricht, aka Dread Pirate Roberts, the founder of The Silk Road, an online bazar for the procurement of everything illegal, didn’t enter into a plea deal and clearly wished he had according to a recent appeal.
Ulbricht says he would have pleaded guilty and accepted the plea offer if his attorneys had properly explained to him the elements that the Government needed to prove. Ulbricht would also have pleaded guilty and accepted the plea offer if he had been advised by counsel that there was a better chance of being sentenced to less than life without the Government’s agreement (Niklova, 2021).
The bargain on offer wasn’t fantastic—10 years to life—but there was a prospect of life outside of a correctional facility. In the end he was left pleading to the Judge directly for clemency after being found guilty on seven different counts including drug trafficking, conspiracy to commit money laundering, conspiracy to commit computer hacking, and a so-called kingpin charge.
As I see it, a life sentence is more similar in nature to a death sentence than it is to a sentence. Both condemn you to die in prison, a life sentence just takes longer.
… I've had my youth, and I know you must take away my middle years, but please leave me my old age. Please leave a small light at the end of the tunnel, an excuse to stay healthy, an excuse to dream of better days ahead and a chance to redeem myself in the free world before I meet my maker (Ulbricht, 2015).
In stark contrast, Gold & Silver Reserve CEO Douglas Jackson was handed 300 hours of community service for his role in the e-gold enterprise, a $200 fine and three years supervision, six months of which was in electronically monitored house detention.
He had faced a maximum sentence of 20 years in prison and a $500,000 fine.
In November 2008, the judge had this to say:
[Dr Jackson’s] an educated man who has used his brain for the benefit of other people … He has used his imagination and his intelligence to come up with the concepts that he's dealing with now. And all of those things are positives.
… The nature and circumstances of the offense we're back into this sort of gray, funny, sort of difficult area where the intent was not there to engage in illegal conduct.’ (UNITED STATES OF AMERICA vs. E-GOLD LTD, 2008).
In her sentencing memorandum (U.S. v. Douglas Lee Jackson 2008: 3), Judge Collyer acknowledged that E-Gold “conceptually, is not illegal” (White, 2014).
Now that legal issues are resolved, he [Douglas Jackson] has committed e-gold and G&SR to a vigorous compliance and oversight program which could only succeed if he were there to head the companies. Since there is no reason to shut down e-gold and G&SR, and every reason to have them come into legal compliance, a sentence of incarceration for Dr. Jackson would be counterproductive” (U.S. v. Douglas Lee Jackson 2008: 3).
Which completely ignored the catch-22: by pleading guilty and becoming a convicted felon, it made it impossible for Dr Jackson and the various e-gold entities personally to procure a money transmitting licence and continue as head of e-gold and G&SR. He was now left with the task of winding up the business and returning the dollar value to customers who held e-gold, but this could only be done without violating the rules of parole if the Secret Service acted as the middle-men between the corporation and their customers.
The additional bureaucracy meant that what ought to have taken a few weeks, took years and cost millions, and benefitted nobody more than the Secret Service who reaped a windfall of $50 million in the process. All unclaimed money after the expiry of the claim deadline was paid to the Secret Service. Thanks to their involvement and the painstaking negotiated agreements and protocols that came with it, the process took so long that contact details naturally became unreliable and a substantial amount went unclaimed.
Also during this time period (2008-2013) gold had appreciated at least 2x. The upshot was even after the out-of-pocket expenses were recovered, the company was short-changed to the tune of $4 million and broken financially. So the government at that time were spending billions to prop up a failed banking system and spending millions to shut down e-gold and take them out of the financial equation for good.
Most people having gone through all this and a marriage breakdown to boot might start losing the will to continue, but not Dr Jackson; he just hit the reset button and attempted to reboot e-gold. This time incorporating a robust anti money laundering policy and overhauling the tech to adjust the scalability to suit the emerging internet behemoths like Amazon.
A third party company was financed that could circumvent the licencing issues for Dr Jackson: a company with the same basic business model as its predecessor but closer adherence to money lending regulations. It managed to get licensing or exemption in 36 states but couldn’t ultimately raise enough capital to get out of the starting blocks. Whether that was because the brand had been indelibly tainted by the court case and the negative press associated with it, is unclear.
Dr Douglas Jackson is unperturbed by the Olympian obstacles that seem to have been deliberately placed in his path by the government. And with the feverish conviction of an alchemist burning through his familial comforts in a sadomasochistic quest for the magic formula, Dr Jackson still anticipates the grand relaunch of his gold-backed monetary scheme that will undoubtedly supersede fiat currency, shut down the blockchain, salvage his reputation and reshape the destiny of the financial world forever.
Abrams, Joseph. 2021. "Understanding ‘Relevant Conduct’ Under The Federal Sentencing Guidelines - Law Office Of Joseph Abrams". Law Office Of Joseph Abrams. https://www.josephabramslaw.com/understanding-relevant-conduct-under-the-federal-sentencing-guidelines/.
Niklova, Maria. 2021. "SILK ROAD’S MASTERMIND ROSS ULBRICHT CHALLENGES SENTENCE AGAIN". Finance Feeds. https://financefeeds.com/silk-roads-mastermind-ross-ulbricht-challenges-sentence/.
Ulbricht, Ross. 2015. "Exhibit 1". S3.Documentcloud.Org. https://s3.documentcloud.org/documents/2086668/gov-uscourts-nysd-422824-251-1.pdf.
UNITED STATES OF AMERICA vs. E-GOLD LTD, GOLD & SILVER RESERVE LTD, DOUGLAS L. JACKSON, BARRY K. DOWNEY, REID A. JACKSON  07-109 (UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA).
U.S. v. Douglas Lee Jackson (2008) U.S. District Court, District of Columbia, Sentencing Memorandum (18 December).
White, L. H., 2014. The Troubling Suppression of Competition from Alternative Monies: The Cases of the Liberty Dollar and E-Gold. George Mason University.