Digital Money World

Understanding This Comment: “Anyone Using E-gold Can End Up In Jail” Pt. 1 of 3

by Mark on February 14th, 2007

This item appeared in Chris Mono’s Earnings Blog. I’m not recommending the blog, but this post is worth discussion. I found it via Google Blog Search keyword ‘e-gold‘ which is a very good way to keep up to date on any topic. A summary of this Feb.12 post is below with lengthy comments. My post here has grown so big I have divided it. Here is Part 1 of 3.

Over the last few months Chris says that he has been in contact with the 1mdc.com admin discussing earning money online. Everyone pretty much knows the 1mdc genius/admin/creator/operator who also owns and operates Interesting Software, Ltd. He’s a great guy and I always appreciate hearing from him. His software creations are amazing and very often he is accessible and eager to share his quality vision with little guys such as myself. 1MDC is the second most used digital gold currency on the Internet.

Chris starts by saying that during his past discussions, the admin contact has drilled into him some important information regarding e-gold Ltd. He further presses his point with questions and statements like this one,

“…e-gold is closing[?] The answer is No. They are not closing….But they are slowly and surely doing a ’stormpay’ when it comes to ponzi schemes.”

I think for the first time in a decade, through this one post, Chris makes us much more aware of some BIG questions. At least in my opinion, they are important questions and I’d like to try and explain why.

Here are the big questions which resonate from his post:

1. What has happened in the past 14 months between e-gold and law enforcement?
2. Where are they now headed? (fast growth? closing? becoming more regulated? just biz as usual?)
3. If they are having problems with regulators, what could happen to someone with a legitimate e-gold account who is using it for everyday online business? (a non scammer)
4. Will changing regulations in the US soon cause a withdrawal from digital gold currency use?

Please keep in mind, what follows here are just my opinions and however you interpret this post, I do love e-gold. I think its the greatest.

I am in agreement with Chris that the law enforcement types and prosecutors are now circling e-gold (this is public knowledge) and that they have been the cause of many blocked user accounts. Additionally, because of the data they have obtained, they could be closing in on a LOT of large current and past scam operations. However, unlike Chris, I don’t see this as a bad thing. He seems to be warning users while I see it as a fresh start.

Chris says, that e-gold is “…surely doing a ’stormpay’ when it comes to ponzi schemes.” This seems to be true, but let me give you some background on StormPay and ponzi schemes (HYIPs and Paid Autosurfs) so you may be able to better envision exactly what I understand to be the real meaning of his statements.

StormPay was an online payment processor which allowed P2P or P2B type online payments. It was similar to PayPal but on a much smaller scale. They opened in late 2002 and operated for several years from Clarksville which is a small town in rural Tennessee.

They accepted credit card account funding and became very popular because their terms of service permitted multi-level marketing (MLM), ‘paid autosurf’ programs, affiliate marketing strategies and some other pretty shady online schemes such as ‘randomizers‘. They allowed this type of ‘gray’ online business to take place and in return many ‘get rich quick’ schemes opted to use StormPay as their method of payment. StormPay processing grew very rapidly as these type schemes exploded on the Net.

(StormPay Previous User Agreement -2005) 17. StormPay MLM Policies: StormPay does resell for MLM opportunities as long as the MLM opportunity is legally compliant and is legal in both the jurisdictions of the purchaser and seller who contracts StormPay as their authorized reseller. StormPay Inc. does not verify the legal compliance of MLM programs and will not be held responsible for any damages arising from purchasing/selling any MLM opportunity. You should note that purchasing any MLM opportunity is done at your own risk. There are many legitimate opportunities on the Internet and each one should be carefully investigated before making any decision to purchase. StormPay will not offer refunds for these or any other purchases. These matters should be taken up with the vendor.

Using StormPay to accept credit cards, quickly helped most of these businesses expand. During 2004 and 2005 these risky and scam style operations flocked to StormPay offering their ‘marks’ an easy way to participate in their online schemes.

If you ask me, this type of business model, fast growth through shady dealings, is little more than a handshake deal with the devil.

You have to realize that when it comes to online scams and get rich quick schemes, in order for the operators to actually keep that ‘get rich quick’ money from the scheme, they cannot have any chargebacks, refund periods or future canceled sales. They usually get their money from victims and disappear into the night, leaving only an IP and a nickname. (1,2,3 examples) Their preference for a particular ‘method of payment’ is always the NON refundable systems. When all transactions are final and ‘one way only’ there is no risk of losing those hard earned scam proceeds.

You must also understand that because of the large amount of online credit card fraud, almost all NON refundable payment systems such as digital gold currencies will NOT accept credit card transactions because they CAN be canceled or refunded at some future date. It is the ultimate online Yin and Yang, expand your business through with CC’s and at the same time open your business up to massive fraud. So online ’scheme’ operators are always looking for a third party processor to create more income via credit cards. StormPay was this operator for a number of years.

With StormPay allowing ‘Paid AutoSurf’ programs (which are poorly disguised investment ponzi scams) and StormPay providing the third party credit card funding, several very large scams emerged. One large program which eventually almost closed StormPay was 12DailyPro. (*Net Archive)

Here is a humorous journey through the 12DailyPro scam as posted via forums on Scam.com . I don’t need to get into big details except to try and show you the enormous scale of that fraud scheme. 12DailyPro involved over 300,000 online participants, cash flowed over $500 million dollars though their program (in and out) in it’s short life and when they were closed by the SEC, StormPay reportedly was holding about $50 million in their frozen fund transactions.

Of course, almost all of these customers were now asking for a refund or chargeback from their credit card company or bank! January 1 through February 16, 2006, the Better Business Bureau in Tennessee received 812 complaints from consumers stating that StormPay had frozen their online accounts and will not make available the funds in those accounts.

StormPay eventually lost their money transmitter license granted by the State of Tennessee and today they are an auction web only. Big headaches and law enforcement investigations. *http://www.sec.gov/

12Daily Pro and Lifeclicks were placed under the control of Thomas F. Lennon, a United States District Court appointed Receiver, at the request of the Securities and Exchange Commission, on March 1, 2006. *http://tlennonfor12dailypro.com/

After investigating 12dailypro, the Securities & Exchange Commission concluded that the operation which called itself a ‘paid autosurf’ was in fact a simple ponzi scheme:

“In fact, at least 95% of 12daily Pro’s revenues have come from new investments in the form of membership fees from new or existing members. ” http://www.sec.gov/litigation/litreleases/lr19579.htm

From this episode, we know that online investment scams known as High Yield Investment Programs (HYIP) and paid AutoSurfs which are in reality are all ponzi schemes, must use NON refundable methods of payment and avoid chargebacks. They would love to expand their operations using credit card merchant accounts or PayPal to increase the number of ‘investors’ or victims, as I like to call them, but to expand using any of those payment methods would open them up to chargebacks which is unacceptable.

In my opinion, Chris’s point is that online ponzi schemes, because they are outright illegal in the US, eventually attract a LOT of law enforcement agencies. As my explanation above shows, scam and scheme operators prefer a non refundable payment method and will often use e-gold. All e-gold transactions are considered final and non refundable.

From his impressions of the emails between the 1mdc admin, he feels that all the ponzi scams using e-gold have attracted too much attention and now e-gold has opened their operation to allow Federal Investigators in to look at all accounts.

I think he believes its time to warn all users that their account balance and info is being evaluated by law enforcement types. Sort of an early warning signal for scam operators to flee e-gold.

Is this a bad thing?

No certainly not! Getting a look in today’s money climate is common and not a bad thing. However, digital gold currency is brand new and its currently unregulated. New laws and regulations regarding online currency are showing up fast and changing the landscape of online payments and online gambling. So the big questions number 3, as shown above, concerns all the legit happy e-gold customers.

Someone using e-gold for the past 5-6 years legally and ethically….are they at risk of future legal troubles or account seizure?

….continued….

The FBI encourages anyone with information or who suspect being a victim, please contact the National Fraud Information Center at 1-800-876-7060 or the Internet Crime Complaint Center at www.ic3.gov.

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POSTED IN: Fraud, e-gold