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E-bullion Interview
Monday, July 29, 2002

 
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Interview with James M. Fayed, President/CEO of e-bullion, conducted by Ragnar Danneskjold, editor - Planetgold.com. E-mail Ragnar for questions or to suggest an interview at Ragnar@planetgold.com

planetgold: Today, Planetgold is pleased to interview James M. Fayed, President/CEO of E-Bullion Company Inc., a member of the Goldfinger Companies.

planetgold: Welcome, James. Thank you for agreeing to participate in this interview.

James: Ragnar, I would like to preface this interview with a thank you for taking the time to interview E-Bullion today. I hope we answer all your questions satisfactorily!

planetgold: James, please tell us a little about yourself.

James: I grew up near Bethesda, Maryland (Metro Wash D.C.), went in the Navy for a couple of years, and worked for the U.S. defense department during part of the 1980's.

My wife, Pamela, was in the gold casting and jewelry business when we met. Our mutual interest took Goldfinger from a part-time business to one of the larger bullion wholesalers on the West Coast. The total career experience (combined) of our Staff works out to over 50 years in the Precious Metals Trade.

planetgold: For those who are unfamiliar with E-bullion, please speak about where it is located and incorporated, etc.

James: The E-Bullion Company is incorporated in The Republic of Panama and is wholly owned by Goldfinger Bullion Reserve Corp, a Delaware Corporation. GBRC has administrative offices in Camarillo from which it operates the E-Bullion system and E-Bullion maintains a presence/ office in Panama to handle local issues of importance. We are in the process of exploring the expansion of the Panama office to take over most of the daily Admin work that is handled in California at this time.

planetgold: Who conceived E-Bullion?

James: Primarily, E-Bullion was conceived as an easier method for our established bullion-trading clientele to process trades and buy their precious metals without the hassle and danger of taking physical delivery (possibly losing a shipment to theft) and secondarily, E-Bullion evolved into a Network which is capable of servicing our Bullion clientele and, in addition, to function as an International Gold and Silver currency.

We began work on the E-Bullion concept in 1998 and spent the next three years planning and developing the Network as you see it today.

planetgold: In what way does E-Bullion distinguish itself from other digital currencies?

James: E-Bullion is focused on clients who require top-notch security as well as superior customer service.

A broker or businessperson with 10,000 oz of gold in his account cannot afford to have a Trojan steal his password. Our CRYPTO Card upgrade gives high value clients the level of security they need because it makes their accounts invulnerable to password or certificate theft.

Basically, the other systems out there either use a secure certificate installed on the client’s computer or a password system of some kind. Any system with the crypto key on the client’s computer is only as secure as the client’s computer. A smart hacker who gains access to the computer can gain access to the client’s gold account.

The CRYPTO Card contains the crypto key in a tamper evident device that looks like a small calculator. In order to log in the client has to use the CRYPTO Card to digitally sign the “challenge” string. It sounds complex but it is very simple in practice. Since the CRYPTO Card is protected by a PIN, the only way a thief can break into someone’s E-Bullion account is if they get both physical possession of the CRYPTO Card and the knowledge of the PIN number. This combination is secure against everything but armed robbery and/or extortion.

In addition, our experience in the precious metals industry affords us a unique position that others lack. We have the edge when issues such as trading, transport, management and storage of physical metals are called for. We don't have to rely on 3rd parties to buy, manage or maintain the metals behind E-Bullion. Frankly, we do this better and more efficiently than other companies anyway and this allows us to pass on overhead savings to our account holders.

Making the transfer from physical sales to an e-currency like E-Bullion is easier if you already have your in-house support in place because basically, the entire operation is simply a duplication of the same effort and business we have been doing daily for many years.

I would say that a good analogy comparing e-bullion to physical sales would be the difference between chocolate and vanilla ice cream; it may taste different but it's still ice cream, just with a different flavor!

The E-Bullion Debit Card provides liquidity.

The E-Bullion Debit Card provides liquidity. We believe that our debit card in addition to Goldfinger’s established client base helped the company grow as quickly as it did in our first year of business. We think the fact that people can use their E-Bullion Debit Cards to buy groceries with gold or silver is a wonderful step forward for the use of gold as money.

Because the E-Bullion reserve is primarily in the form of kilobars and smaller specie, all of .9995 or higher purity, we are able to provide better liquidity for larger clients. Goldfinger’s close relationship to the bullion markets allows us to buy or sell large amounts of bullion on short notice. If large clients want in or out fast, we can accommodate them. Precious metals handling experience really does make a difference.

We fear that bullion banks such as JP Morgan who have engaged in fractional reserve gold lending will come up short when the gold price advances past $400 an ounce

Our segregated & allocated storage arrangements will prove to be of the utmost importance in the near future.

We fear that bullion banks such as JP Morgan who have engaged in fractional reserve gold lending will come up short when the gold price advances past $400 an ounce. There are knowledgeable persons who believe each of the bars sitting in their (bullion banks) vaults has been lent out six to eight times on paper. Just because they will give you the serial number doesn’t mean there aren’t six or seven other claims on the same bar. JP Morgan is estimated to have a $40 (+) billion derivative exposure. They (and others) shorted Gold considerably, albeit to an extreme.

So if gold goes over $400 for an extended period of time, JP Morgan and other bullion banks (as well as several mining outfits) will be hemorrhaging, and there is even a very good possibility that one or more of them might fail (and fail miserably).

That is the primary reason why segregated & allocated storage is so important for a gold currency system. As a matter of fact, in light of the wide spread derivative exposure in the gold markets, we at the Goldfinger companies are actively exploring and pursuing methods of drastically expanding GBRC's (wholly owned & independent vaults) to support 10 (+) metric tons of storage at each location. Once we have this expansion in place and supported we can switch to a completely independent & proprietary system (not dependent on facilities like Brinks and Via-Mat) of security, storage and transport of the precious metals for E-Bullion, GBRC and GFCB. We will also offer our services and expertise to other professionals within the Precious Metals Industry and it will be very cost effective and affordable.

planetgold: Why are you so secretive about the physical metals you manage?

James: The reason we are over-protective and do not list the serial numbers (and/or locations) of the bars in the E-Bullion reserve is because that would expose the bars themselves to frivolous lawsuits. If someone knows the serial number of the bar and where it is located they can file frivolous motion(s) and attempt to put liens against one or more of the specific bars.

planetgold: According to Jim Davidson, of Cambist.net, E-Bullion has excellent customer service. How do you do it?

James: It’s simple. We have live people answer the phone and reply to emails on a daily basis. Company officers, me included, also man the phones and email periodically, when customer demands are high. This helps the leadership keep their finger on the pulse of the needs of our customers. Don’t be surprised if you call the E-Bullion support number and either I or the COO, Scott Layton, answers the phone.

We have established customer service procedures based on twenty years of experience in the bullion business. We operate during regular office hours Monday-Friday 8-5:30 PST, but trading personnel are normally at work by 0520 hrs (for the open of the East Coast Markets).

On the Goldfinger side of the fence, our experience and channels in the bullion markets allow Goldfinger to fulfill orders very quickly. If someone wants to bail in/buy 100 kilobars, for example, we can fill that order on the same day.

planetgold: How many people use E-Bullion?

there are 15,599 Toz of gold in the vaults

James: Presently we have over 19,500 accounts, and more than half of the accounts are funded and actively used. The average account balance is $235 worth of precious metal (that figure includes un-funded accounts). The average funded account balance is around $600. Presently, there are 15,599 Toz of gold in the vaults, and 21,800 Toz of silver. These reserve figures are published on our website and they are updated daily; you will notice the figures will fluctuate based on the number of liquidations and fundings we process for the day.

Since most of our customers seem to be holding gold as an investment, we have a much lower transaction velocity than e-gold. Consumer transactions is an area where we expect to see strong growth over the next two years. Since our ATIP (Automated Transfer Interface Program) is relatively new and is still being polished, we expect it will take a while for developers to start incorporating E-Bullion into their consumer payment systems.

planetgold: What are the rates you charge? How do they compare to other e-currencies?

James: E-Bullion's manual transaction fee is .025 grams of gold, or roughly 25 cents. The ATIP fee structure is a little bit different to make it attractive for automated payment programs. Our storage fee is 1/2% but we waived it for the first nine months of operation.

Exchange Providers fees vary per the service requested but I believe that E-Bullion is one of the lowest in fee structure when you buy-in to fund your account.

planetgold: Some of your clients and integrators have expressed frustration about the ATIP.

This question is from Randall (Randall@Randallsquared.com):

Does e-bullion have an expected completion date for their ATIP? My clients and I really need to be able to automatically verify ATIP payments, but your specification has said that automated verification is not yet finished for some time now.

James: Firstly I have to apologize for the delay in the launching of all the phases of ATIP. Since we develop in-house with our own personnel we sometimes have to divert our tech Department into other areas and this results in completion delays in related projects.

The ATIP is being developed in stages, as was announced in the first release. The release specifies that the account history verification module would be part of Phase III. ATIP Phase I & II were completed pretty close to schedule, and Phase III is underway at present.

Several million dollars worth of gold changes hand's in the E-Bullion system each quarter

planetgold: How much activity (internal and in/out exchanges) does e-bullion see per month?

James: Several million dollars worth of gold changes hand's in the E-Bullion system each quarter. It is not a large number yet, but we are seeing constant growth. Basically, our model is to build the system as a store of value. Once the stored value crosses a certain threshold we expect to see a lot more transaction velocity.

planetgold: Has E-Bullion or its officers any personal or financial ties with any other digital currency?

James: That's a rather vague question, so I will clarify it before I answer. If by personal or financial ties you mean, "has been employed by or owns stock in" then the answer is a clear-cut "no". We built our system in-house and have not hired any former employees of other gold currency companies.

planetgold: How many employees do you have? Who keeps the books?

James: GBRC has seven employees. GBRC operates the reserve and customer service for E-Bullion and bills E-Bullion Company for services rendered. Our auditors and accountants are:
Soares, Sandall, Bernacchi and Petrovich of Ventura CA.

planetgold: Where do you see E-Bullion in 5 to 10 years?

James: When you look that far out you have to consider the fact that the world as we know it will be a very different place in ten years. The chances are that some of the gold currency systems will have switched to bearer certificates instead of book entry systems. I even think that ten years from now POS terminals around the world will be programmed to accept some form of gold & silver e-currency.

One of the strong points of gold currency systems is that they are the most economical way of transmitting value internationally. That means they will eventually replace the current hierarchical system used by Western Union and the Bank for International Settlements.

Today gold currencies don’t have a sufficiently high level of credibility required for Big Business/Large Cap Institutions. Not just because of issues like Standard Reserve and OSGold, but because they are small institutions for the most part that don’t have Large-Cap style financial governance and corporate controls in place. As the numbers continue to prove that gold currencies are the most cost effective money transmitter, larger institutions will likely take an interest and buy out some of the Pioneers that you see in business today.

I think you will definitely see serious M&A; activity in the near future!

planetgold: What are some of your shorter-term goals?

James: Right now E-Bullion’s primary efforts are to maintain our edge by being the first to offer an international Visa Debit Card as well as to build our credibility as a financial institution by building alliances with much larger trusted companies.

We are also working on a cryptographic governance system that will advance the state of the art regarding transparency and auditing of the bullion reserve; however, I can not give you any more details about that at this time.

planetgold: What do you think about the failures of OSGold and Standard Transactions?

James: Unfortunately, the failure of one of those institutions was predictable. OSGold was bound to come apart at the wheels sooner or later - it was just a matter of time.

I am concerned for the people that were conned into believing that metals backed their (OSGold) system or that OSGold credits were any kind of store of value at all. Unfortunately, I doubt that many will recover their losses from OSGold; I mean, does anyone actually even know who the officers or directors of the company are? And really, is it realistic to believe that simply having a problem with their Bank would cause operations to cease for what is now going to 120 + days? If there was real metal behind OSGold, why didn’t they simply liquidate it to meet the redemption demand? You could go on and on with questions such as these.

Standard Reserve was a bit harder to spot because of the credibility lent by the names of Barry Downey as CEO and Douglas Jackson as a board member and equity holder. I realize that Dr. Jackson and Mr. Downey both claim that they were lied to by Elwyn Jenkins, and I completely believe them; however, Directors and Board members have a responsibility to know how the Company is being run. It is the director’s job to see that officers are doing their jobs properly. Obviously, there was a serious breakdown in the chain of command as well as in the control and communication structures between the Board and the Management of Standard Reserve. I have to stress, however, that we are not privy to all the facts at the moment, and I would have to reserve final judgment until ALL the facts present themselves.

planetgold: What steps does E-Bullion take to prevent fraud, both internal and external?

James: Philosophically, you can’t prevent fraud - you can only prosecute it. There are certain deterrents that can help raise the cost of crime. The E-Bullion CRYPTO Card makes it virtually impossible for a hacker to gain access to an account; however, the CRYPTO Card is optional for E-Bullion customers at this point.

No matter how secure we make the E-Bullion network -- The weakest link in the E-Bullion system is the account holder being sloppy or careless with a password for an account. The Crypto Card removes that weakest link in the chain and we encourage all users to upgrade today.

After one year of operation, we do not know of any cases of fraud or password theft against E-Bullion account holders. There were a couple of cases of things like auction fraud that spilled over into E-Bullion via E-Gold and Evocash and others, but we were able to negate this issue very quickly.

As long as some customers use passwords to access their accounts, it is statistically bound to happen that someone will give away their password or have it stolen by a Trojan, but at least with E-Bullion, the customer has the OPTION of CRYPTO Card protection. If they choose not to use it and someone steals their password, it is a risk they choose to take.

From the Goldfinger side of the fence, we constantly have to be on the lookout for criminals who use fake cashier’s checks and other means to wire us fraudulently obtained funds in exchange for gold. They (crooks) always want physical bullion for obvious reasons.

We have become extremely proficient at detecting this because we have been dealing with it for many years. I would say that we catch 99.9% of fraud attempts and stop them before the transactions are completed.

planetgold: Has E-Bullion had any legal troubles?

James: So far it has been smooth sailing with no problems; however, we do retain aggressive (and very competent) legal representation for our Companies and many times litigation is not required to settle any problems that may occur.

planetgold: What are some of the major successes of e-bullion?

James: I think being the first to offer CRYPTO Card protection is definitely one of our crowning achievements. Going from the new guy on the block to having the second largest reserve in the industry in less than a year was also a good start for the company.

planetgold: What are some of the major frustrations?

James: I can't say there have been any monumental frustrations to date. Really, you have to view the obstacles as challenges which you adapt to and overcome.

planetgold: What would you say to a person who uses the cumbersome banking system and is not aware of the benefits of digital currencies?

the term "E-Currency" is a registered trademark of The GBRC Company

James: Before I answer that I would like to clarify that we use the term "gold currency" or "gold e-currency" to refer to the E-Bullion Network. (Incidentally, the term "E-Currency" is a registered trademark of The GBRC Company.) Since James Turk obtained a patent in 1998 and named it "digital gold currency" that term now has a very specific meaning. E-Bullion is not a "digital gold currency" as described in that patent.

E-Bullion is a "Gold Currency" which is a system of transferring claims redeemable in precious metals. Our honorable competitor, GoldMoney, maintains that "digital gold currency" is a system of transferring actual title to physical gold. Since that is a major legal distinction, we think it is important to use the correct terminology so as not to confuse people.

To answer your question:

The most visible benefits of gold currencies are:

Immediate:

- lower transaction cost
- zero charge-backs
- instant clearing

Long Term:

- stability in purchasing power.

These four benefits will be the primary drivers that will cause the global economy to shift over to gold currency during the next twenty to fifty years. A lot of gold currency enthusiasts are into it because of the political implications of using gold as money. Economics drive politics and not the other way around. Most politicians live in a dream world, but the market eventually brings them back to reality by punishing countries with laws that don't make good economic sense. Gold currencies will be adopted because they are the most efficient way to get a very important job done. They transmit value through time and space at a lower cost in time and money than any other method. Countries that encourage and allow the use of Gold Currency will prosper; countries that stifle a free market in gold will suffer. This has historically been the case.

To give you an example, the Nilson Report just did an article on E-Bullion in which they compared us to Western Union, MoneyGram and PayPal. To send $400 USD from Virginia to Germany and convert it to Euros costs:

Western Union - $42
MoneyGram - $33
PayPal - $15.90
E-Bullion $8.25

The reason Gold Currencies can do international transfers more efficiently is that you pay a 2% premium to get gold currency, but you can liquidate at spot price into any other paper currency. With paper currency exchange you have to pay the exchange fee buying or selling. So the exchange spread on gold currency is effectively half the spread on paper to paper. This allows gold to function as a "transport currency". The instant clearing of the gold currency transaction allows your European exchange agent to put the money in your German bank account the same day.

As the exchange network for gold currencies grows, this system will become more and more cost effective.

planetgold: This concludes our interview with James M. Fayed of E-bullion. Feel free to browse previous interviews on this site and come back next week for Planet Gold’s next exciting interview. Also, sign up for our email notification service to be informed when Planet Gold publishes a new interview. If you have any questions regarding this interview or would like to suggest an interview, please contact Ragnar@planetgold.com

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Copyright 2002 by Planet Gold. All Rights Reserved.


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