Motion for evidentiary hearing 060107 @ 11:00 am (00285665-4).D

DEFENDANTS’ MOTION TO VACATE SEIZURE WARRANT AND TO MODIFY RESTRAINING ORDER AND REQUEST FOR AN EVIDENTIARY HEARING

Defendants e-gold Limited (“e-gold Ltd.”), Gold & Silver Reserve, Inc. (“G&SR”), Douglas L. Jackson, Barry K. Downey and Reid A. Jackson, by their undersigned counsel, move the Court to vacate the seizure warrant entered in Case No. 07-167-M-01 and modify the post-indictment restraining order, and request an evidentiary hearing on this matter. In support of this motion, undersigned counsel state as follows:

I. INTRODUCTION

e-gold Ltd. and G&SR stand at the forefront of an innovative new approach to exchanging value over the Internet in a global economy.^¹ They do not function in the same manner as – and are not – traditional financial institutions or currency exchange services. Accordingly, they are not subject to existing statutes and regulations drafted in an earlier day to govern “money transmitting businesses.”

As noted more fully below, many government representatives agree with this interpretation. The prosecutors in this case are among the few who do not.

This matter, therefore, ultimately amounts to little more than a legal dispute about the application of a law to a particular factual situation. In such a context – and particularly given the continuing cooperation that Defendants have provided during the course of the government’s nearly three-year investigation – the draconian actions that the government persuaded the Court to authorize, based upon an incomplete and at times inaccurate ex parte application, are completely inappropriate.

On April 26, 2007, the government served the Defendants with a post-indictment restraining order and twenty-four (24) seizure warrants. The seizure warrants directed the Defendants, within twenty-four (24) hours, to liquidate a collection of e-gold accounts and turn over to the government the value contained in those accounts. Defendants complied in all respects.^²

Despite persuading the Court to sign the Post-Indictment Restraining Order stating that "the order requested is narrowly tailored to allow orderly continuation of defendants' business activities as well as the ability of the defendants' customers to access their funds through it,” (Post-Indictment Restraining Order, ¶ 7), the government failed to advise the Court that because the seizure warrant issued in Case No. 07-167-M-01 (the "Primary Seizure Warrant") ordered the seizure of “[a]ny and all property” in the primary operating accounts of e-gold Ltd. and G&SR, the Defendants would be left incapable of continuing the orderly operation of the business and of allowing customers the ability to access their funds.

The Primary Seizure Warrant authorized the government to seize “[a]ny and all property in/underlying E-GOLD account 544179 and in/underlying E-GOLD account 109243, held by E-GOLD, Ltd. or Gold & Silver Reserve, Inc. on behalf of E-GOLD, Ltd.” As the government was well aware, those two accounts are the two (2) primary operating accounts of the defendant corporations. They contained e-metal balances with a U.S. Dollar equivalent of approximately $2,206,927.48 (as of April 26, 2007), approximately $819,121.85 of which is titled to e-gold, Ltd., and approximately $1,387,805.63 of which is titled to G&SR.

Additionally, as this Court is aware, on December 30, 2005, in Civil Action No. 05-02497, the Clerk signed a Warrant of Arrest in Rem which resulted in the arrest of two bank accounts containing approximately $850,000 titled to Gold & Silver Reserve, Inc. The value contained in those two bank accounts is currently the subject of stayed litigation (Civil Action No. 05-02497) which is presently before this Court..

Consequently, without ever having been heard on the merits of the seizure, the Defendants have had e-gold and U.S. Dollars with an aggregate approximate value of Three Million Fifty-Five Thousand Eight Hundred Sixteen Dollars ($3,055,816.00) arrested or seized. They have no access to those funds. As a result, they simply do not have money with which to operate their businesses, pay attorneys fees, and pay for reasonable operating and living expenses.

II. DEFENDANTS MUST BE AFFORDED AN EVIDENTIARY HEARING BASED UPON THE DUE PROCESS CLAUSE OF THE FIFTH AMENDMENT

The question which this Court must first resolve is whether – and upon what basis – the Defendants are entitled to an evidentiary hearing before trial to challenge the seizure warrants and post-indictment restraining order which currently restrain the Defendants' assets and impair their livelihood and ability to retain counsel. Based upon the grounds and authorities discussed below, the Court must find that Defendants are to be afforded such a hearing. Following that hearing, the Court should enter an order vacating the Primary Seizure Warrant and appropriately modify the restraining order.

A. The Defendants’ Fifth Amendment Due Process Rights Have Been Triggered by the Government’s Seizure of the Defendants’ Property

It is well recognized that a pre-trial seizure of assets in a criminal case constitutes an impairment on property triggering the Due Process Clause of the Fifth Amendment of the United States Constitution, which provides that “no person shall…be deprived of life, liberty, or property, without due process of law.” See, Connecticut v. Doehr, 501 U.S. 1, 12 (1991); United States v. Crozier, 777 F.2d 1376, 1383 (9^th Cir. 1985). The United States Supreme Court has gone so far as to describe pretrial asset restraints as the “nuclear weapon of the law.” Grupo Mexicano de Deasarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 332 (1999).

The federal courts have consistently recognized that particular attention must be paid when dealing with this “severe remedy,” United States v. Razmilovic, 419 F.3d 134, 137 (2d Cir. 2005). This is particularly so because asset restraints are imposed on an ex parte basis and without the benefit of an adversarial process and because the government has a strong pecuniary interest in the outcome. E.g., United States v. James Daniel Good Real Property, 510 U.S. 43, 56 n.2 (1993) (extent of government’s financial stake in forfeiture has produced a concomitant lack of neutrality); Krimstock v. Kelly, 306 F.3d 40, 63 (2d Cir. 2002) (there is a need for greater procedural safeguards – here, an early, pretrial adversary hearing – where the government has a pecuniary interest in the outcome of forfeiture proceedings), cert. denied, 539 U.S. 969 (2003); 1 David B. Smith, Prosecution and Defense of Forfeiture Cases, §§1.01-1.02 (2006 ed.).

B. The Triggering of the Defendants’ Fifth Amendment Rights Necessitates a Post-Deprivation, Pre-Trial Hearing Where the Defendants May Challenge the Government’s Restraint of Their Assets

The protection afforded by the Due Process Clause’s plain text applies whenever the government has “deprived” a person “of…property.” U.S. Const. Amend. V; [Emphasis added]. Nothing in that clause limits the Fifth Amendment’s protections to only those persons who need to use their seized property or who are indigent. Accordingly, the federal courts have held that, when the government restrains a criminal defendant’s assets before trial on the assertion that they may be subject to forfeiture, due process requires that the defendant be afforded a post-deprivation, pre-trial hearing to challenge the restraint if certain minimal conditions are satisfied.^³

In United States v. James Daniel Good Real Prop., 510 U.S. 43, 48-49 (1993), the United States Supreme Court held that precedent “establish[es] the general rule that individuals must receive notice and an opportunity to be heard before the Government deprives them of property.” See also, United States v. Perholtz, 622 F.Supp. 1253, 1256 (D.D.C. 1985) (“The United States cannot obtain a permanent restraining order that prevents a defendant from disposing of his property by means of an ex parte proceeding. Due process requires that such an order be temporary and the United States must give affected defendants notice of a hearing within a brief amount of time or the ex parte order expires. A ten day limitation on the duration of such ex parte orders seems appropriate.”)

C. Various Courts Have Relied on Rule 65 of the Federal Rules of Civil Procedure to Decide Matters Such as the One Presently Before this Court

The Fifth and Ninth Circuits have consistently held that a defendant is entitled to a prompt pretrial hearing whenever the government obtains an ex parte order restraining his property on the assertion that the property may be subject to forfeiture. In United States v. Roth, 912 F.2d 1131, 1133 (9^th Cir. 1990), the court held that “in order for a restraining order…to be constitutional, the district court must hold a hearing under Rule 65 to determine whether probable cause exists to issue an injunction.” Id. ; see also Crozier, 777 F.2d at 1384 (holding that “the district court…erred in denying without a hearing the motions of [the defendants] to dissolve the restraining order”); United States v. Spilotro, 680 F.2d 612, 617 (10^th Cir. 1982) (requiring “an immediate hearing whenever temporary restraining order has been granted ex parte”) (internal quotations marks omitted). The denial of a motion for an evidentiary hearing in such circumstances is immediately appealable; see, United States v. Kirschenbaum, 156 F.3d 784, 788 (7^th Cir. 1998) (“We agree with the [In re Assets of Martin, 1 F.3d 1351, 1355 (3d Cir. 1993)] court that the ‘considerable weight’ of decisions on point establishes that the restraining order in this case and the district court's order refusing to vacate it are immediately appealable under 28 U.S.C. § 1292(a)(1).”)

In United States v. Unimex, Inc., 991 F.2d 546 (9^th Cir. 1993), the Court reversed the conviction of the Unimex Corporation (“Unimex”), whose assets had been seized before trial. The Court concluded that Unimex had been denied its Sixth Amendment right to counsel because Unimex had not been afforded either appointed counsel or the opportunity to contest the seizure of its assets.^⁴ Unimex explicitly recognized that, where the moving papers present “a substantial claim,” and where “the allegations are sufficient, and factual issues are raised, a hearing is required.” Id. at 551, (internal quotation marks omitted). If the matter turns on a disputed factual issue, the moving party must be given an opportunity to present evidence at a hearing scheduled sufficiently in advance of trial to enable the movant to retain counsel should it prevail. Id.

These cases cannot be dismissed as unique to the “liberal” Ninth Circuit. The conservative Fifth Circuit has reached the same legal conclusions as the Ninth. In United States v. Holy Land Foundation for Relief and Development, 445 F.3d 771, 788 (5^th Cir. 2006), for example, the government obtained an ex parte restraining order under 21 U.S.C. § 853(e) to freeze and preserve the foundation’s assets for criminal forfeiture. The government argued that the foundation did “not have an automatic right to a hearing under the forfeiture statute,” and that the § 853 post-indictment restraining order had an “indefinite duration.” Id. at 788. The Fifth Circuit, however, held that “in order for a restraining order under §853 to be constitutional, the district court must hold a hearing under Rule 65 [of the Federal Rules of Civil Procedure] to determine whether probable cause exists to issue an injunction.” Id. at 792;^⁵ ^⁶ see also, United States v. Thier, 801 F.2d 1463, 1468 (5th Cir. 1986); United States v. Melrose E. Subdivision, 357 F.3d 493, 505 n.12 (5th Cir. 2004) ("As a general matter, the Federal Rules presumptively apply except to the extent that they actually conflict with a subsequent statute."); see also, United States v. Riley, 78 F.3d 367, 379 (8^th Cir. 1996) (holding that before a post-indictment restraining order may issue “the government must demonstrate at a hearing that the RICO defendant is likely guilty and that the property to be restrained will be subject to criminal forfeiture”).

D. The Monsanto Standard Applies in Most Other Jurisdictions

While not all circuits have aligned with the Fifth, Eighth and Ninth circuits, they have held that a post-restraint hearing must be held where the movant shows that he or she needs the frozen assets to defend against criminal charges or for necessary living expenses during the pendency of criminal litigation. In those circuits, evidentiary hearings are held when the defendant makes such a showing along with a prima facie showing that the grand jury erred in determining that the assets are subject to forfeiture.^⁷ In United States v. Monsanto, 924 F.2d 1186, 1203 (2^nd Cir. 1991) (en banc), the Court held:

[T]he fifth and sixth amendments, considered in combination, require an adversary, post-restraint, pretrial hearing as to probable cause that (a) the defendant committed crimes that provide a basis for forfeiture, and (b) the properties specified as forfeitable in the indictment are properly forfeitable, to continue a restraint of assets (i) needed to retain counsel of choice and (ii) ordered ex parte pursuant to 21 U.S.C. § 853(e)(1)(A)…

924 F.2d at 1195;^⁸ see also, United States v. Jones, 160 F.3d 641 (10^th Cir. 1998); United States v. Farmer, 274 F.3d 800, 803 (4^th Cir. 2001).

Although the D.C. Circuit has never definitively addressed the specific issue, in a recent case raising an almost identical due process issue, the D.C. Circuit held that before an organization is designated as a foreign terrorist organization under the Antiterrorism and Effective Death Penalty Act of 1996 (“AEDPA”), by which the organization is effectively deprived of its property, the organization must be given an opportunity to be heard. National Council of Resistance of Iran v. Dep’t of State, 251 F.3d 192 (D.C. Cir. 2001). That decision is highly protective of an organization’s property rights because it requires a pre-deprivation evidentiary hearing as a matter of due process; see also, Perholtz, supra; United States v. Madeoy, 652 F.Supp. 371, 376 (D.D.C. 1987).

The Defendants in this case seek only a post-deprivation hearing on the pre-trial restraint already in place and urge the Court to adopt the view of the Fifth, Eighth and Ninth Circuits. Nevertheless, should the Court adopt a more restrictive position, the Defendants have made the showing necessary to obtain a Monsanto hearing; see, infra, at §§ III, IV.

III. THE GOVERNMENT LACKED PROBABLE CAUSE TO BELIEVE THAT THE DEFENDANTS COMMITTED ANY CRIMES THAT WOULD PROVIDE THE BASIS FOR FORFEITURE

On May 22, 2007, nearly one month after the execution of the seizure warrants and Post-Indictment Restraining Order, the government first made available to Defendants a copy of the government’s affidavit submitted to the Court in support of the seizure warrants issued in these matters. That affidavit makes clear that the seizure warrants were sought, and issued, solely on the basis of the allegation that the property subject to the Primary Seizure Warrants “was involved in the operation of an unlicensed money transmitting business in violation of Title 18, United States Code, Section 1960. See Affidavit in Support of Seizure Warrant (“Dotson Affidavit”), ¶ 6; see also ¶¶ 4, 22-26.

The affidavit was purportedly prepared and signed by Roy Dotson, a Special Agent with the United States Secret Service who has – at least based on a plain reading of his affidavit – never previously investigated either a licensed or unlicensed money transmitting business; Dotson Affidavit, at ¶ 1. Strikingly, SA Dotson was either unaware, or, if aware, failed to disclose to the Court, that his conclusion about the supposed illegality of Defendants’ operations is rebutted by many other government authorities who have previously stated that existing federal laws and regulations do not apply to digital age businesses such as e-gold and G&SR. For example:

● In its October 13, 2006 Report on New Payment Methods, the Financial Action Task Force (FATF) indicated that in the United States, money transmitters are among moneyservices businesses that are required to register with the FIU (FinCEN), they also are subject to AML reporting and recordkeeping requirements and are often required to be licensed on the state level. “Whether an online payment system or digital precious metals dealer meets the definition of a money transmitter pursuant to the relevant regulations, though, depends upon its location and the ways in which it participates in or conducts transactions.”^¹²

Additionally, on May 3, 2007 – the date on which the Defendants were all arraigned in this case based on an indictment which alleged that they conspired to participate in an unlicensed money transmitting business – the Department of Justice announced the release of the 2007 National Money Laundering Strategy (the “2007 Strategy”); see, http://www.usdoj.gov/opa/pr/2007/May/07_opa_325.html; (A copy of the Justice Department’s announcement is attached hereto as Exhibit 1).^¹³

The 2007 Strategy, which is signed by the Secretary of the Treasury (Henry Paulson, Jr.), the Attorney General (Alberto Gonzales), and the Secretary of Homeland Security (Michael Chertoff), “is a direct response to the first U.S. Government wide money laundering threat assessment released in December 2005. In addition to following this new methodology, the 2007 Strategy for the first time focuses exclusively on money laundering.” 2007 Strategy, at v; [Emphasis added].^¹⁴ (The 2007 Strategy, in its entirety, is being filed contemporaneously with this motion under separate cover as a Notice of Filing.)

The 2007 Strategy specifically references e-gold in its discussion of “online payment systems” and “digital currency dealers;” id., at 43-45. According to the 2007 Strategy, “[t]he oldest and best known of the digital currency services is e-gold Ltd., licensed in Nevis, with almost 2 million accounts.” Id., at 43-44; [Emphasis added]. The Strategy, in its discussion of Regulation and Public Policy, continues:

In the United States, money transmitters are among MSBs required to register with FinCEN, are subject to AML reporting and recordkeeping requirements, and are often required to be licensed on the state level. Whether an online payment system or digital currency service meets the definition of a money transmitter pursuant to BSA regulations, though, depends upon its location and the ways in which it participates in or conducts transactions.

In each of the above-referenced reports, the authors have expressly stated that they are on notice that (a) e-gold exists and that (b) money transmitters exist. However, not one such author or report has labeled e-gold as a money transmitting business, licensed or otherwise. Rather, each author states that whether a company like e-gold, Ltd. or G&SR is a money transmitting business depends on the way that it participates in or conducts transactions; id.

In fact, the manner in which Defendants conduct their transactions renders them outside the ambit of the statutes and regulations applicable to “money transmitting businesses.” Many in the United States government apparently concur. Yet, SA Dotson never addressed the findings, reports, statements and conclusions reached by other government officials on this issue. He and the prosecutors in this case, however, cannot avoid doing so. See, e.g., United States v. Brown, 322 F.Supp. 2d 101, 105 (D.Mass. 2004) (citing United States v. Fiasconaro, 315 F.3d 28, 35-36 (1st Cir. 2002) (in assessing probable cause, a court will be guided by the "collective knowledge" or "fellow officer" rule, under which the aggregate knowledge of all officers involved in the investigation will be imputed to the officer making the arrest).

Had SA Dotson addressed the findings, reports, statements and conclusions reached by other U.S. government officials – or even simply advised the court that others hold these views – several things would have been clear.

For instance, 18 U.S.C. § 1960 does not define the term “money transmitting business.” As such, SA Dotson’s description of “money transmitting laws” is inexcusably incomplete; see, Dotson Affidavit, at ¶¶ 22 – 23. According to SA Dotson,

[t]he term “money transmitting” under Section 1960(b)(2) includes “transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier.”

See, Dotson Affidavit, at ¶ 23; [Emphasis added]. SA Dotson leads the reader to believe that so long as a person, business or other entity transmits money, that person, business or other entity automatically becomes a money transmitting business. Armored car and courier companies nationwide should heed SA Dotson’s caution.

However, what SA Dotson neglected to share with his reader was the collection of laws that govern and truly define the money transmitting business. To begin, 31 U.S.C. § 5330 is entitled “Registration of money transmitting businesses.” That statute alone advises “money transmitting businesses” that if they are such a business then they must register with the Secretary of the Treasury, the state in which they operate, or both; see, § 5330(a)(1).^¹⁵

Section 5330 also defines “money transmitting businesses.” According to § 5330, in order to be a “money transmitting business,” a business must meet the following criteria:

(d) Definitions. For purposes of this section, the following definitions shall apply:

(1) Money transmitting business. The term "money transmitting business" means any business other than the United States Postal Service which—

(A) provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, and other similar instruments or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system;[;]

Accordingly, in order to fully articulate probable cause that the Defendants were operating an unlicensed money transmitting business, SA Dotson first needed to fully articulate that they were operating a money transmitting business. Because he failed to do so, his affidavit was insufficient and probable cause was never truly established.

To be sure, the Government has long since acknowledged that the Defendants do not accept cash as part of their business. Consistent with that acknowledgement, SA Dotson wrote in his affidavit as follows:

To obtain e-gold through OmniPay, a customer is required to wire national currency, in an amount greater than $1,000, to a bank account specified by the e-gold operation. Thereafter, the customer’s e-gold account would be credited for the amount of the wire, minus an exchange fee collected by OmniPay.

Dotson Affidavit, at ¶ 29.^¹⁶ Therefore, even had SA Dotson attempted to take the Court through § 5330’s three-prong definition of “money transmitting business,” he could never have done so. Per SA Dotson’s own writing, the Defendants are not required to file reports under 31 U.S.C. § 5313.

Section 5313 is entitled “Reports on domestic coins and currency transactions.” In its opening paragraph, that statute provides as follows:

(a) When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes.

[Emphasis added]. In other words, § 5313 provides that when a person is engaged in a transaction involving currency, a certain form must be filed.

Attached hereto as Exhibit 2 is that form: a “Currency Transaction Report,” a/k/a FinCEN Form 104. FinCEN form 104 provides as follows:

Who Must File. Each financial institution (other than a casino, which instead must file FinCEN Form 103, and the U.S. Postal Service for which there are separate rules) must file FinCEN Form 104 (formerly 4789) (CTR) for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000. Multiple transactions must be treated as a single transaction if the financial institution has knowledge that (1) they are by or on behalf of the same person, and (2) they result in either currency received (Cash In) or currency disbursed (Cash Out) by the financial institution totaling more than $10,000 during any one business day. For a bank, a business day is the day on which transactions are routinely posted to customers’ accounts, as normally communicated to depository customers. For all other financial institutions, a business day is a calendar day.

FinCEN Form 104, at p.3; [Emphasis added]. The form also provides the following definitions:

Currency. The coin and paper money of the United States or any other country, which is circulated and customarily used and accepted as money.

Transaction in currency. The physical transfer of currency from one person to another. This does not include a transfer of funds by means of bank check, bank draft, wire transfer or other written order that does not involve the physical transfer of currency.

Pursuant to 31 U.S.C. § 5313, currency transaction reports need only be filed when a transaction in currency is performed. It naturally follows that entities that do not – as a matter of practice – engage in transactions in currency need not file reports under 31 U.S.C. § 5313; see, United States v. Talebnejad, 460 F.3d 563, 565 (4^th Cir. 2006) (“A money transmitting business is one that, for a fee, accepts currency for transfer within or outside the United States through foreign currency exchanges and financial institutions.”) [Emphasis added]. Therefore, the Defendants in this case – who, as a matter of practice, do not engage in transactions in currency and are therefore not required to file reports under § 5313 – cannot be defined as a money transmitting business under 31 U.S.C. § 5313.

Accordingly, so long as e-gold, Ltd. and G&SR do not deal in currency, they cannot be required to file currency transaction reports under § 5313. And, so long as neither company is required to file currency transaction reports under § 5313, they cannot be described as “money transmitting businesses” under § 5330, the sole federal statute which actually defines that term. SA Dotson and the prosecutors in this case, who travel under an overly-narrow reading of the law, stand alone in their contentions. The Defendants in this case do not operate a money transmitting business and do not purport to do so and the government cannot establish that it does.^¹⁷

IV. THE DEFENDANTS – AS THE NECESSARY AND PROXIMATE RESULT OF THE PRE-TRIAL RESTRAINTS LEVIED UPON THEM IN THIS CASE – HAVE BEEN RENDERED UNABLE TO PAY FOR COUNSEL AND FOR REASONABLE LIVING AND OPERATING EXPENSES

As previously stated, without so much as a hearing, and based on a legitimate question of law which would be far more appropriately resolved in a declaratory judgment action, the government has seized from the Defendants e-gold Ltd. and G&SR bank accounts and e-gold accounts with an aggregate value of approximately USD $3,055,816. In this case, attorneys fees, together with litigation, discovery management, travel and related expenses, will cost the companies far in excess of $3.5 million. Attached hereto as Exhibits 3 through 7 are affidavits of each of the Defendants which – when studied together – reveal how severely these pre-trial restraints have affected the Defendants’ Sixth Amendment right to counsel and abilities live and operate on an ongoing basis.

A. Gold & Silver Reserve, Inc.

i. Assets

As required by the Court, G&SR disclosed its available liquid assets in a letter to the government signed by undersigned counsel on May 3, 2007. (Dr. Douglas Jackson, on behalf of G&SR, attested to the accuracy of that letter in an Affidavit. As of that date, G&SR had a total of 2,470.329527 troy ounces of e-gold (the equivalent of USD $1,653,885.62) in its e-gold accounts. (That figure included G&SR’s seized e-gold account, and was based on the May 2, 2007 P.M. London Fix of $669.50 per troy ounce; see, www.lbma.org.uk/2007dailygold.htm)

As of May 28, 2007, G&SR had the equivalent of USD $523,678.77 in its remaining e-gold accounts, with a $166,193.55 balance of unfilled InExchange orders. G&SR also has $164.22 in an HSBC bank account in Australia (to which it has little or no access) and $135,965.08 in a Colonial Bank bank account (which is used exclusively for purposes of paying payroll and payroll taxes).

In its May 3, 2007 disclosure to the Government, G&SR indicated that it had an SEB (Estonia) Bank account with the following types and amounts of money located therein:

However, as of the date of that disclosure, approximately 98% of the money contained in G&SR’s SEB bank account was dedicated to the processing of the OutExchange orders of G&SR’s customers.

As of May 28, 2007, G&SR had the equivalent of $347,935.01 (USD) in the SEB account and unfulfilled OutExchange orders totaling the equivalent value of $349,850.04 (USD). However, citing the press release published by the government upon the unsealing of the indictment in this case, SEB Bank terminated its relationship with G&SR effective May 25, 2007 at 10:00 a.m. EST.^¹⁸ (Attached hereto as Exhibit 8 is a copy of the notice provided to G&SR by SEB.) Additionally, because banks around the world have refused to allow G&SR to open an account, G&SR has no way to earn an income in the foreseeable future (other than the fees it receives from e-gold, Ltd.).

G&SR has no other liquid assets. G&SR does, however, have 22,784.5104 troy ounces of e-silver (the equivalent of $294,603.73 USD); 46.180766 troy ounces of e-platinum (the equivalent of $58,788.11 USD); and 65.635473 troy ounces of e-palladium(the equivalent of $24,153.86 USD). But these assets are illiquid. To be sure, in order for G&SR to liquidate its e-silver, G&SR must first redeem its e-silver for physical silver with e-gold Ltd. and specify delivery of physical bullion to a bullion dealer with whom G&SR has placed a trade.^¹⁹ All of the physical silver backing e-silver is located in a Transguard storage facility in Dubai. However, before there can be any disposition of the metal held by the e-gold Bullion Reserve Special Purpose Trust in the Transguard facility, Mr. Hil de Frias – a trustee of the Trust residing in Bermuda – must sign off on any such transaction. Mr. de Frias, however, has been completely uncooperative with the Defendants’ substantial efforts to comply with the seizure warrants and has refused to perform any of the tasks that he is to perform under the terms of the e-gold Bullion Reserve Special Purpose Trust.

All of the physical palladium and platinum backing the e-palladium and e-platinum, respectively, is likewise stored in the Transguard facility in Dubai, and is illiquid for the same reason explained above regarding the e-silver. Additionally, because G&SR does not have access to enough e-palladium to warrant the sale of a full bar of palladium, it cannot liquidate its e-palladium. Furthermore, because the physical platinum backing G&SR’s e-platinum holdings is currently the subject of ongoing litigation in Canada, G&SR cannot liquidate its e-platinum. Accordingly, as of May 28, 2007, G&SR has $377,545.70 worth of e-metal (e-silver, e-palladium and e-platinum) which can neither be liquidated, sold, traded or used to pay attorneys fees.

As stated in G&SR’s attached affidavit, G&SR requires approximately $186,569.73 per month to pay for ordinary expenses, including rent, salaries and wages, taxes, telephone charges, office supplies, travel expenses and other related costs. Additionally, as of May 28, 2007, G&SR had a $2,015,432.80 total balance of notes payable and a $203,048.00 total balance of accounts payable. Ultimately, G&SR has an insufficient sum of liquid assets as compared to its costs and liabilities which would allow it to remain in business and pay for its attorneys fees; but see, Post-Indictment Restraining Order, at ¶ 7 (“…the order requested is narrowly tailored to allow orderly continuation of defendants’ business activities, as well as the ability of the defendants’ customers to access their funds.”)

B. e-gold, Ltd.

i. Assets

e-gold, Ltd. promptly acted in conformity with the seizure warrants and Post-Indictment Restraining Order entered in this case as soon as e-gold, Ltd. received them. Immediately prior to freezing its own operating assets as instructed by the Court, e-gold, Ltd. had 1,122.52 troy ounces of e-gold in its primary operating account (Account No. 544179). At the close of business on April 26, 2007, gold had a value of $673.00 per troy ounce, giving e-gold account no. 544179 a USD value of $755,455.96. e-gold, Ltd. froze the account and turned over its USD equivalent as soon as the liquidation could occur.

Pursuant to the Post-Indictment Restraining Order, e-gold, Ltd. disclosed its available liquid assets in a letter to the government signed by undersigned counsel on May 3, 2007. (Dr. Douglas Jackson, on behalf of e-gold, Ltd., attested to the accuracy of that letter in an Affidavit.). As of that date, e-gold, Ltd. had a total of 1931.580932 troy ounces of e-gold in its e-gold accounts, the equivalent of $1,293,193.43. (This amount included e-gold Ltd.’s seized e-gold account and is based on the May 2, 2007 P.M. London Fix of $669.50 per troy ounce; see, www.lbma.org.uk/2007dailygold.htm) As of May 28, 2007, e-gold, Ltd. had the equivalent of $745,386.05 in its remaining e-gold accounts.

ii. Costs and Liabilities

The fees that e-gold, Ltd. pays to G&SR as the operator of e-gold system is G&SR’s primary source of revenue. In other words, if not for e-gold, Ltd., G&SR could not afford to pay the costs and fees outlined in paragraph IV-A of this motion.

C. Dr. Jackson, Mr. Jackson and Mr. Downey (“The Individual Defendants”)

The charges against the Individual Defendants in this case all relate to their duties as officers and directors of G&SR. G&SR’s corporate policy – consistent with the law of the state of Delaware, where G&SR is incorporated – has always been to pay the attorneys fees of officers, directors and employees when the action in which they are involved arises from the exercise of their duties on behalf of G&SR. This is specifically authorized by Delaware law, which provides in pertinent part:

A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation…

8 Del. C. § 145(b). See also, VonFeldt v. Stifel Financial Corp., 714 A.2d 79, 84 (Del. 1998) (“We have long recognized that Section 145 serves the dual policies of: (a) allowing corporate officials to resist unjustified lawsuits, secure in the knowledge that, if vindicated, the corporation will bear the expense of litigation; and (b) encouraging capable women and men to serve as corporate directors and officers, secure in the knowledge that the corporation will absorb the costs of defending their honesty and integrity.”); citing, Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 344 (Del. 1983).

During the grand jury investigation and forfeiture action which proceeded this case, G&SR paid for the attorneys fees of the Individual Defendants and each of the G&SR employees who were subpoenaed to testify before the grand jury in Washington, D.C. Indeed, it is G&SR’s corporate policy to do so, and each of the directors of the G&SR believe that it is in G&SR’s best interest for G&SR to advance the legal fees of each of the Individual Defendants at this time; see, 8 Del. C. § 145(d). G&SR will similarly continue to pay for the attorneys fees of all of its employees and contractors as such employees and contractors are subpoenaed by the government to testify in this case.

Nevertheless, to the extent that the Court believes that the individuals should be responsible for their own attorneys fees, the Individual Defendants have each prepared affidavits (attached hereto as Exhibits 5, 6 and 7) which demonstrate how each is financially incapable of paying for the attorneys fees and related expenses required to defend a case of this magnitude.

Based upon an incomplete and at times inaccurate ex parte presentation, the government has persuaded the Court in this case and in the stayed civil action to legitimize the seizure from the Defendants of more than Three Million Dollars ($3,000,000) of their assets without any opportunity for the Defendants to be heard on the merits of those seizures. Those seizures are rapidly precipitating the ruin of two legitimate and innovative businesses, creating substantial hardship on the Individual Defendants and their families and will leave Defendants unable to retain counsel to respond to the baseless charges brought in this action.

The seizures and pre-trial restraints are particularly shocking and inappropriate in this case where (a) there is a substantial good faith disagreement about the applicability of the law – the very law upon which the government sought the seizure warrants -- to the Defendants’ businesses; (b) other government authorities have themselves questioned the applicability of that law to the Defendants’ businesses; (c) Defendants have since the inception of the businesses worked hand-in-hand with government agents to root out fraud and illicit activity perpetuated by people using the e-gold system for improper purposes; and (d) have fully cooperated with the investigators and prosecutors in this case during the course of the government’s nearly three-year investigation.

For all of these reasons, and the reasons more fully set forth above, the Court should grant Defendants an evidentiary hearing through which Defendants may challenge the seizures and pre-trial restraints in place in this case. Following that hearing, the Defendants request that the Court enter an order vacating the seizure warrant in Case No. 07-167-M-01 and modifying the post indictment restraining order.

WHEREFORE, for the foregoing reasons, the Defendants respectfully request that this Court hold a hearing whereby the Defendants may challenge the seizures and pre-trial restraints in place in this case, and, upon holding such a hearing, enter an order vacating the seizure warrant in Case No. 07-167-M-01 and modifying the post indictment restraining order.

DEFENDANTS’ MOTION TO VACATE SEIZURE WARRANT AND TO MODIFY RESTRAINING ORDER AND REQUEST FOR AN EVIDENTIARY HEARING

was served on June 1, 2007 on all counsel of record via the Court’s Electronic Case Filing system.

1The background of the defendant companies, and the efforts that Defendants have made to work cooperatively with governmental authorities since the birth of the companies, is critical to the consideration of this motion and this case. Defendants did not wish to repeat in this motion the extensive background set forth in Defendants’ Status Report And Notice Of Compliance With This Court’s Seizure Warrants And Post-Indictment Restraining Order ("Status Report and Notice"); nonetheless, as that information is critical to this motion, Defendants incorporate those matters herein and respectfully urge the Court to carefully consider the factual predicate set forth in that Status Report and Notice.

2 Although Defendants have done all they could to comply with every aspect of the restraining order and seizure warrants which the government persuaded the Court to enter, Defendants question the legality of some of the affirmative acts they have been ordered to perform. The restraining order, for example, required that Defendants “freeze, that is not conduct or allow any further transactions in e-gold accounts that the e-gold operation itself has identified as being used for criminal activity.” Post-Indictment Restraining Order, p.3. Even regulated financial institutions are obliged to rely on court orders directed to specific accounts before freezing them. Yet, this order directs e-gold Ltd. to substitute its own judgment for that of a court acting upon information constituting probable cause furnished by the government. Additionally, the seizure warrants directed the Defendants “exchange/convert” e-gold in the subject accounts into physical gold or “funds denominated as Unites States currency. Those requirements, which go far beyond mere restraint of assets, have caused Defendants substantial additional loss.

3 The government should certainly not be permitted to argue that the Defendants are not yet entitled to challenge the pretrial restraints in this case because their assets were seized "civilly." As the Tenth Circuit has observed “[t]he wholesale use of civil forfeiture proceedings [should cause] grave concern when the Government has clearly focused its law enforcement energies and resources upon a person and attempts to restrain his property in anticipation of formal criminal proceedings." United States v. $39,000 in Canadian Currency, 801 F2d 1210, 1219 n.7 (10th Cir. 1986); see also United States v. Nichols, 654 F. Supp 1541, 1545 (D.Utah 1987).

4Unimex is highly instructive in this matter. In Unimex , the court correctly held that (a) it did not have the power to appoint counsel for a corporation and that (b) CJA funds are not available for corporate representation. Accordingly, if the Court in this case does not release sufficient seized assets to allow the two corporations to retain counsel, the corporate defendants will be forced to go to trial without the assistance of counsel.

5Rule 65 of the Federal Rules of Civil Procedure provides, in pertinent part:

(b) Temporary Restraining Order; Notice; Hearing; Duration. (b) Temporary Restraining Order; Notice; Hearing; Duration. A temporary restraining order may be granted without written or oral notice to the adverse party or that party's attorney only if

(1) it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or that party's attorney can be heard in opposition, and

(2) the applicant's attorney certifies to the court in writing the efforts, if any, which have been made to give the notice and the reasons supporting the claim that notice should not be required.

Every temporary restraining order granted without notice shall be indorsed with the date and hour of issuance; shall be filed forthwith in the clerk's office and entered of record; shall define the injury and state why it is irreparable and why the order was granted without notice; and shall expire by its terms within such time after entry, not to exceed 10 days, as the court fixes, unless within the time so fixed the order, for good cause shown, is extended for a like period or unless the party against whom the order is directed consents that it may be extended for a longer period. The reasons for the extension shall be entered of record. In case a temporary restraining order is granted without notice, the motion for a preliminary injunction shall be set down for hearing at the earliest possible time and takes precedence of all matters except older matters of the same character; and when the motion comes on for hearing the party who obtained the temporary restraining order shall proceed with the application for a preliminary injunction and, if the party does not do so, the court shall dissolve the temporary restraining order.

7In this case, it does not appear that the grand jury ever determined that the frozen assets are subject to forfeiture. The mere fact that forfeiture is noticed in the indictment does not prove that the grand jury actually made a probable cause determination with respect to the restrained assets. In order to do so, the government’s forfeiture evidence would have to be presented to the grand jury and its theory of forfeiture would have to be explained. Further, the grand jury would have to be properly instructed on the law regarding forfeiture. Such is the import of the “Notice of Forfeiture” – as opposed to an actual forfeiture count – contained in the indictment. Because forfeiture is merely an aspect of sentencing, it does not necessitate consideration by the grand jury; Libretti v. United States, 516 U.S. 29 (1995); Rule 7(c)(2), Fed. R. Crim. P.

The Second Circuit’s due process analysis can also be seen to support the broader notion that, without regard to the need to obtain counsel, a defendant is entitled to a hearing on the restraint of his or her property after the restraint has been imposed. That is the view expressed by the Seventh Circuit in United States v. Kirschenbaum, 156 F.3d 784, 793 (7^th Cir. 1998). The court of appeals characterized the general due process issue as a “close question,” which it ultimately declined to decide.

14The 2007 Strategy was authored jointly by the Drug Enforcement Agency, the National Drug Intelligence Center, the Department of Justice, the Department of the Treasury, the U.S. Department of Homeland Security, the Board of Governors of the Federal Reserve System, the United States Postal Service, the Federal Bureau of Investigations, the Department of State, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Internal Revenue Service. (The foregoing agencies delineated in bold print each have members on the team of government agents investigating and prosecuting this case, all of whom have repeatedly appeared for each proceeding before this Court.

15Although SA Dotson never cited to this statute in his affidavit, he was clearly on notice that it existed. In his affidavit, at ¶ 11, he advised the Court that “the federal government requires money transmitting businesses to have registered with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, by December 31, 2001 if they were in existence before that date, and, otherwise, within 180 days after the date the business was established.”

16SA Dotson’s use of the word “currency” in this paragraph, while colloquially acceptable, is legally inapt. 31 C.F.R. § 103.11(h) defines “currency” as “[t]he coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.” By its very definition, currency cannot be wired. This issue is crucial and must neither be confused nor overlooked.

17In Talebnejad, the court articulated that 18 U.S.C. § 1960 “is not a strict liability offense.” Talebnejad, 460 F.3d at 570 n. 5. Rather, § 1960 “is a general intent crime, as to which the mens rea of ‘knowledge’ attaches to all factual elements of the offense.” Id. Accordingly, to be convicted of a § 1960 charge, a defendant must, at the very least, know that he was operating a money transmitting business. In this case, the Defendants have repeatedly asserted that they have always believed themselves to be issuers and exchangers of the base money of a privately issued, alternative global currency for which – as previously stated by FBI Special Agent Ken McGuire – there are no applicable laws. See, supra., p. 12, n. 10. SA Dotson raised none of these issues in his affidavit.

18See, National Council of Resistance of Iran v. Dep’t of State, 251 F.3d 192, 204 (D.C. Cir. 2001) (“Like the parties in [Wisconsin v. Constantineau, 400 U.S. 433, 27 L. Ed. 2d 515, 91 S. Ct. 507 (1971)], and unlike the parties in [Paul v. Davis, 424 U.S. 693, (1976)], petitioners here have suffered more than mere stigmatization. Rather than being posted as drunkards, the petitioners have been designated as foreign terrorist organizations under the AEDPA. Rather than being deprived of the previously held right to purchase liquor, they have been deprived of the previously held right to--for example--hold bank accounts, and to receive material support or resources from anyone within the jurisdiction of the United States. Many people, presumably including the members of the Council and the PMOI, would consider these to be rights more important than the right to purchase liquor. We consider at least one of them equally entitled to constitutional protection.”); see also, Constantineau, 400 U.S. at 437 (“Where a person's good name, reputation, honor, or integrity is at stake because of what the government is doing to him, notice and opportunity to be heard are essential.”) [Emphasis added].

19In order to liquidate e-silver, G&SR must sell silver bullion to a bullion dealer. In order to deliver bullion to the bullion dealer, G&SR must redeem a certain amount of e-silver from its own e-gold account and instruct e-gold, Ltd. to deliver physical silver to the bullion dealer. However, it must be noted that the bullion is an asset of the e-gold Bullion Reserve Special Purpose Trust, not an asset of either e-gold, Ltd., G&SR, Dr. Jackson, Mr. Jackson, or Mr. Downey. Accordingly, any disposition of physical bullion from the account of the e-gold Bullion Reserve Special Purpose Trust requires written, signed instructions from e-gold, Ltd. and the Escrow Agent. “The safekeeping arrangements with secure repositories shall require dual signature (i.e., authorization by both e-gold Ltd. and by the designated third party contracted to serve as Escrow Agent) before any bullion may be removed for any purpose;” see, e-gold Bullion Reserve Special Purpose Trust, at ¶ 4.1.

I. INTRODUCTION

II. DEFENDANTS MUST BE AFFORDED AN EVIDENTIARY HEARING BASED UPON THE DUE PROCESS CLAUSE OF THE FIFTH AMENDMENT

A. The Defendants’ Fifth Amendment Due Process Rights Have Been Triggered by the Government’s Seizure of the Defendants’ Property

B. The Triggering of the Defendants’ Fifth Amendment Rights Necessitates a Post-Deprivation, Pre-Trial Hearing Where the Defendants May Challenge the Government’s Restraint of Their Assets

C. Various Courts Have Relied on Rule 65 of the Federal Rules of Civil Procedure to Decide Matters Such as the One Presently Before this Court

D. The Monsanto Standard Applies in Most Other Jurisdictions

III. THE GOVERNMENT LACKED PROBABLE CAUSE TO BELIEVE THAT THE DEFENDANTS COMMITTED ANY CRIMES THAT WOULD PROVIDE THE BASIS FOR FORFEITURE

IV. THE DEFENDANTS – AS THE NECESSARY AND PROXIMATE RESULT OF THE PRE-TRIAL RESTRAINTS LEVIED UPON THEM IN THIS CASE – HAVE BEEN RENDERED UNABLE TO PAY FOR COUNSEL AND FOR REASONABLE LIVING AND OPERATING EXPENSES

A. Gold & Silver Reserve, Inc.

i. Assets

B. e-gold, Ltd.

i. Assets

ii. Costs and Liabilities

C. Dr. Jackson, Mr. Jackson and Mr. Downey (“The Individual Defendants”)