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.
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.
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.
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.
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.
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.
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.
For singles .... I found a hot place where you can find your rich and sexy partner...
Try your best to enjoy life..[========SugarBabyMeet.cOm ======]
HOPE YOU CAN FIND YOUR LOVE
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.
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.
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.
Except nobody claims that paper money will be some sort of magical hedge against the collapse of western civilization. Some folks do seem to think that way about gold...
I'm inclined to agree with you, but there are other bugs in the gold standard:
-Gold rushes cause unpredictable, often high inflation. The Nevada silver rush proved bimetallism (a gold standard combined with a silver standard) untenable.
-The lack of a gold rush causes deflation.
-Actually useful goods (i.e. gold) are overloaded with value due to being legal tender. This causes inefficiencies, because if you actually need gold to use as a metal, you have to pay more because there's artificial demand for it. Likewise, an artificially high amount of capital and labor is invested in gold mining.
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.
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?
For singles .... I found a hot place where you can find your rich and sexy partner...
Try your best to enjoy life..[========SugarBabyMeet.cOm ======]
HOPE YOU CAN FIND YOUR LOVE
> 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?
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:
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.
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:
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.
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?
If people can start their own countries and governments, then they might be able to make independent currencies that actually work well given today's technology.
There is a big reason to do this: the credit card industry essentially doesn't need to exist. That's many $B's to disintermediate.
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.
35 comments
[ 3.1 ms ] story [ 17.3 ms ] threadThe guys in Cryptonomicon did it better- at least it was in a jurisdiction where enough money buys a lot of immunity.
I'm amazed the word "hubris" didn't come up in every second paragraph.
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.
this is a feature not a bug. the economists who support government monetarism are shills.
(Which is the reason these topics get avoided here: like everywhere else on the internet, they turn smart people into name-callers)
What steps will reproduce the problem?
1. Crash global economy.
2. Have nothing on hand other than large stockpile of gold bars.
What is the expected output?
Gold will magically transmute into food, water, ammunition and shelter.
What do you see instead?
Gold remains inedible, non-potable, unsuitable for use as ammunition and too heavy for use as shelter-building material.
-Gold rushes cause unpredictable, often high inflation. The Nevada silver rush proved bimetallism (a gold standard combined with a silver standard) untenable.
-The lack of a gold rush causes deflation.
-Actually useful goods (i.e. gold) are overloaded with value due to being legal tender. This causes inefficiencies, because if you actually need gold to use as a metal, you have to pay more because there's artificial demand for it. Likewise, an artificially high amount of capital and labor is invested in gold mining.
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?
Given the depiction of this guy's persona, this statement seems accurate. Why would the Feds nail him like this?
http://goldmoney.com/
http://en.wikipedia.org/wiki/GoldMoney
http://www.thestandard.com/news/2008/08/22/e-bullions-lawyer...
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.
http://cryptome.info/ap.htm
http://news.ycombinator.com/item?id=253569
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?
There is a big reason to do this: the credit card industry essentially doesn't need to exist. That's many $B's to disintermediate.