Chalk up one more victory for the US Secret Service, IRS, FBI and US Department of Justice in their war to prevent online crime and keep us all safe from financial predators. E-Gold, the digital currency the Department of Justice labeled as a safe haven for internet scammers, online pyramid schemes, pedophiles and black market makers worldwide has been officially rendered defunct by the US government. Key to E-Gold’s demise was it’s anonymous nature and just like those Swiss Banks who booted US account holders at the IRS’s request last week, it’s become more than obvious that the US Government is engrossed with invasion of citizen’s personal and financial privacy on a level that would have our founding fathers turning over in their graves.

The Department ofJustice released the follwing press release entitled “Digital Currency Business E-Gold Pleads Guilty to Money Laundering and Illegal Money Transmitting Charges” :

WASHINGTON – E-Gold Ltd. (E-Gold), an Internet-based digital currency business, and its three principal directors and owners, pleaded guilty to criminal charges relating to money laundering and the operation of an illegal money transmitting business, Acting Assistant Attorney General Matthew Friedrich for the Criminal Division and U.S. Attorney for the District of Columbia Jeffrey A. Taylor announced today. E-Gold and its corporate affiliate Gold & Silver Reserve Inc. each pleaded guilty to conspiracy to engage in money laundering and conspiracy to operate an unlicensed money transmitting business. The principal director of E-Gold and CEO of Gold & Silver Reserve Inc. (Gold & Silver Reserve), Dr. Douglas Jackson, 51, of Melbourne, Fla., pleaded guilty to conspiracy to engage in money laundering and operating an unlicensed money transmitting business. E-Gold’s other two senior directors, Barry Downey, 48, of Baltimore, and Reid Jackson, 45, of Melbourne, each pleaded guilty to felony violations of District of Columbia law relating to operating a money transmitting business without a license. E-Gold, Gold & Silver Reserve and the three company directors were charged in an indictment returned by a federal grand jury on April 24, 2007. At sentencing, E-Gold and Gold & Silver Reserve face a maximum fine of $3.7 million. Douglas Jackson faces a maximum prison sentence of 20 years and a fine of $500,000 on the conspiracy to engage in money laundering charge, and a sentence of five years and a fine of $250,000 on the operation of an unlicensed money transmitting business charge. Downey and Reid Jackson each face a maximum of five years in prison and a fine of $25,000. Additionally, as part of the plea, E-Gold and Gold & Silver Reserve have agreed to forfeiture in the amount of $1.75 million in the form of a money judgment for which they are joint and severally liable. Sentencing for all defendants has been set for Nov. 20, 2008. In addition to the fines and prison sentences, each of the defendants agreed that E-Gold and Gold & Silver Reserve will move to fully comply with all applicable federal and state laws relating to operating as a licensed money transmitting business and the prevention of money laundering which includes registering as money service businesses. Also as part of the plea agreement, the businesses will create a comprehensive money laundering detection program that will require verified customer identification, suspicious activity reporting and regular supervision by the Internal Revenue Services’ (IRS) Bank Secrecy Act Division, to which the Financial Crimes Enforcement Network delegated authority according to federal regulations. E-Gold and Gold & Silver Reserve will hire a consultant to ensure their compliance with applicable law and hire an auditor to verify the companies’ claims that all transactions are fully backed by gold bullion. Under federal law and District of Columbia law, in addition to other jurisdictions, the E-Gold operation was required to be licensed and registered as a money transmitting business. However, according to information in plea materials, the E-Gold operation functioned as a money transmitting business without registering with the federal government and without a license in the District of Columbia. Because these businesses and individuals illegally failed to register and follow applicable regulations under federal and District of Columbia laws, the resulting lack of oversight and required procedures created an atmosphere where criminals could use “e-gold”, or digital currency, essentially anonymously to further their illegal activities. Specifically, according to information contained in plea materials, the E-Gold operation provided digital currency services over the Internet through two sites: www.e-gold.com and www.Omnipay.com. Several characteristics of the E-Gold operation made it attractive to users engaged in criminal activity, such as not requiring users to provide their true identity, or any specific identity. The E-Gold operation continued to allow accounts to be opened without verification of user identity, despite knowing that “e-gold” was being used for criminal activity, including child exploitation, investment scams, credit card fraud and identity theft. In addition, E-Gold assigned employees with no prior relevant experience to monitor hundreds of thousands of accounts for criminal activity. They also participated in designing a system that expressly encouraged users whose criminal activity had been discovered to transfer their criminal proceeds among other “e-gold” accounts. Unlike other Internet payment systems, the E-Gold operation did not include any statement in its user agreement prohibiting the use of “e-gold” for criminal activity. “By failing to comply with money laundering laws and regulations, the E-Gold operation created an environment ripe for exploitation by criminals seeking anonymity in conducting online transactions,” said Acting Assistant Attorney General Matthew Friedrich. “This case demonstrates that online payment systems must operate according to the applicable rules and regulations created to ensure lawful monetary transactions.” “The operations of E-Gold Ltd. and the other defendants undermined the laws designed to maintain the integrity of our financial system and created opportunities for criminal activity,” said U.S. Attorney Taylor. “Because of the successful prosecution of these defendants, digital currency providers everywhere are now on notice that they must comply with federal banking laws or they will be subject to prosecution.” “The Secret Service is pleased with the successful outcome of the E-gold investigation,” said U.S. Secret Service Assistant Director for Investigations Michael Stenger. “This case demonstrated that even the most sophisticated criminals cannot escape the combined resources of the Secret Service and our law enforcement partners. The Secret Service is committed to our mission of safeguarding the nation’s critical financial infrastructure and we will continue to pursue criminals seeking to use the Internet and new technologies to commit crimes.” The case was investigated by the U.S. Secret Service, IRS Criminal Investigation and the FBI. The case was prosecuted by Assistant U.S. Attorney Jonathan Haray of the U.S. Attorney’s Office for the District of Columbia, Senior Counsel Kimberly Kiefer Peretti of the Criminal Division’s Computer Crime and Intellectual Property Section and Laurel Loomis Rimon, Deputy Chief of the Criminal Division’s Asset Forfeiture and Money Laundering Section, with assistance from the Criminal Division’s Child Exploitation and Obscenity Section. William Cowden of the U.S. Attorney’s Office Asset Forfeiture Unit assisted with forfeiture issues involved in the case. Source : http://www.usdoj.gov/opa/pr/2008/July/08-crm-635.html

The July 21, 2008 press release by the Department of Justice has many former E-gold customers scratching their head, wondering if their IP addresses and personal information will make them subject to further investigation by the feds but suffice to say, only the largest accounts, which made up 80% of the E-Gold system will have to worry if Uncle Sam will be shaking his bony finger in their direction.

Following the release of the DOJ information, Dr. Douglas Jackson made a public statement on the official E-Gold blog assuring that E-Gold would begin a process to become properly licensed to operate as a money services business in the United States.

In harmony with this transformation, we acknowledge that e-gold is indeed a Financial Institution or Agency as defined in US law and should be regulated as a Financial Institution. E-gold Ltd. has submitted an application to FinCEN to be registered as a Money Services Business and will be seeking licensure in all states that require it. Most importantly, working in conjunction with US government agencies, we will be exerting every effort to bring e-gold into compliance with US law and regulation as quickly as possible.

Many readers of this blog will remember that in the past, we have exposed Paypal as being allowed to operated their money services business in each respective state despite the fact that for over a decade Paypal has not been operating with proper licensing in each state they do business in.

Call this a conflict of interest or call it a government conspiracy, the truth is that both E-Gold and Paypal have been at odds for years. eBay, who owns Paypal, conveniently removed E-Gold as a valid payment processor for auctions several years ago, as they have removed every payment processor that threatens Paypal’s cash cow. Granted E-gold’s non-repudiation policy does not compare to Paypals supposed “buyer protection”, however anybody who has ever been scammed on eBay or somewhere else using Paypal, knows very well that Paypal doesn’t do very much to protect buyers and sellers using their service.

While it is not the intention of this blog to edify E-Gold’s legitimacy nor transmute Paypal’s squeaky clean image, it still seems rather ignorant that at a time when many US banks and financial institutions are imploding because of the mortgage crisis and the US dollar is being devalued against every major world currency, a payment system such as E-Gold which is based on the gold standard has more stability than a payment system based on the shrinking US Dollar. Not to mention, if the US keeps locking up citizens at the current rate of incarceration, there’s not going to be anybody left on the outside to pay the taxes which finance the booming prison industry.

Tagged : E-Gold, Department of Justice, Paypal, Douglas Jackson, FBI, IRS

 Wachovia Corp (NYSE: WB) led the US based banks posting dismal second quarter earnings as losses piled up related to the mortgage crisis and other debt the company failed to account for. The total loss for Wachovia was $8.86 billion according to Reuters which also reported Fifth Third Bancorp (NasdaqGS: FITB) and KeyCorp (NYSE: KEY) posted losses which have many bank customers wondering if their bank will be the next IndyMac.

Regions Financial Corp (NYSE: RF) and SunTrust Banks Inc (NYSE: STI) also posted losses. A SunTrust representative stated profit available to common stockholders fell 21 percent to $535.3 million, or $1.53 per share, from $673.9 million, or $1.89, a year earlier. Regions said net income fell 54 percent to $206.6 million, or 30 cents per share, from $453.3 million, or 63 cents, hurt by losses tied to home equity loans and homebuilders.

“The banking industry is suffering from the tail end effects of a burst housing bubble,” said Gerard Cassidy, an analyst at RBC Capital Markets. “While capital markets operations weren’t hit as badly as in the first quarter, what dominates results now is good, old-fashioned credit deterioration. We’re going to see more.”

The losses incurred by US banks have had an impact on the the Forex market and the value of the US dollar. Thomson Financial reported the US dollar has dropped against major currencies as a direct result of lackluster earnings results from Wachovia Corp. At 11:20 a.m. GMT, the euro was trading at $1.5938, having dropped to around $1.5907 at around 9:25 a.m. GMT. At 8:19 a.m. GMT, the euro had traded at around $1.5935.

What does all this mean to US consumers ? For investors with stock in Wachovia, either in their portfolio or as part of a mutual fund, it means that they can expect to share the pain with the 10,750 Wachovia employees who will lose their jobs as part of a turnaround plan. Other investors will feel the pain of Wachovia cutting their quarterly common stock dividend to 5 cents per share following a May dividend cut to 37.5 cents per share from 64 cents.

“These bottom-line results are disappointing and unacceptable,” says Lanty Smith, Wachovia’s chairman. “While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility. Our company is facing up to these issues, is addressing the challenges head-on and has redirected near-term strategic priorities.”.

Tagged : Wachovia, SunTrust, KeyCorp, Fifth Third, Regions

  IndyMac Bancorp Inc. (IDMC.PK) is currently under investigation by the FBI for possible fraud in connection with home loans the company made to risky borrowers. Indymac was taken over last Friday by the FDIC and assets were seized by federal authorities after the mortgage lender giant fell due to the credit crunch combined with tumbling home prices and the rising foreclosure rate.

Hundreds of customers waited in line to recover funds they had deposited into the failed bank and most deporsitors were granted immediate access to up to $100,000 held in their accounts with a threshold set at 50% for recovery of funds above the $100K mark. Fortunately for retirees and families, customers with joint accounts or retirement accounts were allowed to withdraw greater amounts.

IndyMac isn’t alone in under the FBI’s scrutiny. At least 21 other companies, including Countrywide Financial, are currently under investigation due to possible fraud tied to the subprime mortgage crisis. Authorities are looking into over 1,400 cases of mortgage fraud nationwide and at more than 400 real estate player who have been indicted since March 2008.

More information about the FBI investigation ofIndyMac is available at the following sites :

• Time Magazine - FBI Investigating IndyMac Bancorp
• Courant.com - FBI investigating possible home-loan fraud at IndyMac Bancorp.
• The Street - FBI Probing IndyMac, Report Says
• Reuters - FBI probing IndyMac for possible fraud: report

  Is it truth or fiction that search engine giant Google will have to turn over every record of every video watched by the users of it’s popular YouTube internet service to Viacom, which is suing Google for allowing clips of its copyright videos to appear on the site ? Privacy advocates all around the world have been fearing the day when Google’s collection of personal information, gathered from it’s search engine, Adsense advertising program, video sites, webmaster services and e-mail services, somehow spill over into the public domain.

According to a news story at Ft.com, Manhattan federal court judge Louis L. Stanton has ordered Google to turn over logfiles, ip addresses and copies of all videos that it has taken down from YouTube for any reason. Viacom hopes to use this collection of data to show that copyright infringing videos uploaded by YouTube users are viewed more often than the site’s non copyright infringing videos.

Google (NASDAQ:GOOG) has run into a fresh storm over online privacy after a US judge ordered YouTube, its popular online video site, to hand over records detailing the viewing habits of its millions of users. … The order will force YouTube to give Viacom detailed computer logs with information about all the videos that have been viewed on site, along with the login information and computer addresses of all of its users. Source : Financial News

The San Jose Business Journal has released a contrary article stating that Viacom’s request has been denied…

A federal judge denied a request by Viacom Inc. that Google Inc. and its YouTube subsidiary be forced to turn over code relating to their search functions. Manhattan U.S. District Judge Louis L. Stanton granted a request by Mountain View-based Google (NASDAQ:GOOG) protecting the code. Google said the source code, which controls its Internet search tool and YouTube functions, is a trade secret and disclosing it would put the business at risk. Source : Silicon Valley / San Jose Business Journal

Although Google argued that turning over the data would invade its users’ privacy, the judge’s ruling (.pdf) described that argument as “speculative” and ordered Google to turn over the logs on a set of four tera-byte hard drives.

Viacom also requested YouTube’s source code, the code for identifying repeat copyright infringement uploads, copies of all videos marked private, and Google’s advertising database schema.

Those requests were denied in whole, except that Google will have to turn over data about how often each private video has been watched and by how many persons.

Google’s defense of YouTube

Google Inc. has mounted a defense against the viacom lawsuit tating the following :

Among other defenses, YouTube and Google claim the protection afforded by the Digital Millennium Copyright Act of 1998 (“DMCA”) (17 U.S.C. §§ 512(c)-(d), (i)-(j)), which among other things limits the terms of injunctions, and bars copyright-damage awards, against an online service provider who: (1) performs a qualified storage or search function for internet users; (2) lacks actual or imputed knowledge of the infringing activity; (3) receives no financial benefit directly from such activity in a case where he has the right and ability to control it; (4) acts promptly to remove or disable access to the material when his designated agent is notified that it is infringing; (5) adopts, reasonably implements and publicizes a policy of terminating repeat infringers; and (6) accommodates and does not interfere with standard technical measures used by copyright owners to identify or protect copyrighted works.

What does this mean for Google ?

It’s no secret that Google Inc has been down over 200 points from it’s 52 week high of 747.24 and Google has been struggling to keep their stock from falling even further. Although the YouTube news today was mildly disturbing to investors, GOOG gained 9.96 (1.89%) as participants traded listlessly in a shortened session just ahead of the Independence Day holiday.

On the other hand, Viacom Inc. was down 0.50 (1.66%) today.

It seems America’s taste for over-priced coffee is waning as the aveage American consumer is concerned with the dwindling economy, skyrocketing fuel prices and the volatility of the stock market and real estate markets. Amidst this credit crunch, more American’s are preferring to cut back on frivilous expenses such as a cup of java giant Starbucks designer $4 lattes.

Starbucks Corp. (NASDAQ: SBUX) announced their plans today to close nearly 600 underperforming stores and lay off as many as 12,000 full and part time employees. The company cites competition from places like McDonald’s and less business as a result of the economy for the drastic cutbacks. The numbers don’t lie, Starbucks is closing 19 percent of all US company operated locations that opened over the last two years. A company representative stated most employees will be moved to nearby stores, but she did not know exactly how many jobs will be lost. Starbucks estimated nearly $8 million in severance costs.

At the end of March, there were 16,226 Starbucks stores around the world. The company operates 7,257 of those stores in the US and 1,867 abroad. The remaining 7,102 locations are run by franchise partners who license the Starbucks brand.

In the meantime, Starbucks Corp. is seeing a surge in after hours trading volume. Shares closed today down 0.76% at $15.62 in normal trading but the after hours market is seeing shares remarkably trade higher by 3% at $16.14.