The 28-page indictment, handed down on April 24 and unsealed Friday, is the culmination of a two-and-a-half year investigation by federal authorities into the practices of one of the earliest issuers of so-called digital currency and its operating company, Gold & Silver Reserve, the U.S. Department of Justice said in a statement.
The site has grown into a "highly favored" method of payment for operators of, criminals on virtual bulletin boards who swap stolen credit card numbers and other sensitive information, and online vendors of child pornography, according to the indictment. The indictment accuses Douglas Jackson, Barry Downey and Reid Jackson at various times between 1999 and December 2005 of allowing such transactions without imposing meaningful restrictions or conducting checks on an account holder's identity, even when they were allegedly aware criminal activity was occurring.
"Criminals of every stripe gravitated to E-Gold as a place to move their money with impunity," Jeffrey Taylor, U.S. attorney for the District of Columbia, said in a statement. "As alleged in the indictment, the defendants in this case knowingly allowed them to do so and profited from their crimes."
E-Gold, which launched in November 1996 and is operated out of Melbourne, Fla., bills itself as a "superior" digital currency system backed by physical gold that can be used for e-commerce, bill payments, person-to-person payments, and other typical transactions. Douglas Jackson, its chairman, told a congressional committee last fall that E-Gold had the second largest reach of any online payment system behind eBay subsidiary PayPal, with more than 3 million accounts in 165 countries and more than $2 billion in transactions annually.
Users fund their accounts with the national currency they normally use, which is then converted into E-Gold, and may then be used to engage in "anonymous" transactions around the world, according to the Justice Department. Opening an account requires only a working e-mail address, and no other identity verification takes place, the agency said.
According to the company, merchants that accept the payments range from the Mozilla Foundation, maker of the Firefox Web browser, to a company peddling weight-loss cookies to an organization devoted to rescuing poodles in eastern Florida. The indictment, however, alleges that E-Gold "was not widely accepted by large or mainstream vendors."
In addition to money laundering charges, the indictment alleges that E-Gold's owners did not obtain necessary state and federal licenses required of companies that engage in money transmissions and failed to establish an anti-money laundering program required by federal law. Each of the charges related to money transmission carries up to five years in prison, while the conspiracy to commit money laundering charge can result in as much as a 20-year sentence.
The Justice Department said it has already obtained a restraining order to restrict the business's operations and two dozen seizure warrants affecting 58 accounts. E-Gold can continue to exchange currency for the customers whose accounts were not covered by those warrants.
Company representatives reached by CNET News.com on Monday were unable to provide immediate comment. Jackson said on Monday he expected to issue a statement later in the day.
The company, which is incorporated in the British West Indies, has publicly defended its system in the face of past allegations of criminal abuses.
E-Gold's Jackson told a congressional committee investigating the commercial online child pornography market last fall that his firm has taken steps since 2004 to identify and block all such sites that accept E-Gold payments and associated accounts. Jackson said such transactions have accounted for less than one-hundredth of 1 percent of the company's payment volume.
Jackson, a former physician, also acknowledged at the time that the company was under investigation by U.S. authorities. He said he remained confused, however, as to why the Secret Service raided the Gold & Silver Reserve offices and his own home in December 2005. The authorities confiscated all records from the E-Gold system, interrupted the lives of employees with interrogations and froze bank accounts until an emergency court order lifted the restriction in mid-January of that year, the company chairman told politicians.
"Gold & Silver Reserve does not know why it has been singled out for investigation when the other larger institutions have not," Jackson said in his written testimony, "especially considering Gold & Silver Reserve has possibly the best ability to track payments and identify those making transactions and had made repeated offers to assist if provided with proper legal direction."
CNET News.com's Dawn Kawamoto contributed to this report.