UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

AFFIDAVIT OF BARRY K. DOWNEY

1. I, Barry K. Downey, being duly sworn, hereby make the following statements. I would make these statements both in deposition and at trial.

2. I am over 18 years of age and am fully competent to make this affidavit.

3. I have read and understand the pleadings in this case.

4. I am a Director of e-gold Ltd., Gold & Silver Reserve, Inc., and DigiGold.net Ltd.

5. E-gold Ltd. is a Nevis Corporation. Gold & Silver Reserve, Inc. is a Delaware Corporation doing business as Omnipay. The E-Gold Bullion Reserve Special Purpose Trust (the "Trust") is a Bermuda trust. Baxter, Baker, Sidle, Conn, and Jones, P.A. (the "Escrow Agent") is a Maryland corporation. DigiGold.net Ltd is a Nevis Corporation.

6. E-gold Ltd. performs several functions. First, e-gold Ltd. maintains a user account database. The database records transactions in e-metals (e-gold, e-silver, e-platinum, e-palladium) between the users' e-gold's accounts. The database calculates and reports, on a real-time basis, the amount of e-metal in each e-gold account. The database also calculates the total amount of e-metal in circulation.

7. Second, e-gold Ltd. creates electronic currency (e-metals) in the database. The precious metal-backed e-metals are created when a precious metal is delivered to one of the Trust's allocated bullion accounts in one of the repositories engaged by e-gold Ltd. and the Trust for this purpose. The Trust informs e-gold Ltd. of receipt of a delivery of precious metal.

8. Third, e-gold Ltd. and the Escrow Agent must approve any removal of any of the precious metal from the Trust's allocated bullion account at a repository. This removal is authorized only if an e-gold account holder has returned an amount of e-metal to e-gold Ltd. corresponding to the fine weight of a whole bar or other bullion unit owned by the Trust. For example, if an e-gold account holder wanted to receive delivery of a gold bar owned by the Trust, the user would notify e-gold Ltd. of this intent and e-gold Ltd would ask the repository to identify a specific bar and its fine weight. Then, e-gold Ltd. would instruct the account holder to spend a specified amount of e-metal to an e-gold Ltd. owned e-gold account. The user would be required to spend an amount of e-gold equal to the fine weight of the bar, plus all applicable fees. Upon e-gold Ltd's receipt of the e-metal from the account holder, e-gold extinguishes that amount of e-metal equal to the fine weight of the bar. Once the Escrow Agent and e-gold Ltd. receive confirmation of this extinguishment of e-metal, they authorize removal of the bar from the Trust and delivery of the bar to the account holder.

9. Fifth, e-gold Ltd., and not the Trust, pays all overhead in operating the e-gold system. For example, e-gold Ltd. pays vault fees for storage of precious metals in the repositories, the Escrow Agent, all originators (persons who sign up other persons who could conduct transactions in e-gold), and the operator of the e-gold account database (currently Omnipay).

10. The e-metal in an e-gold account holder's account is a liability of e-gold Ltd. Transfer of e-metal between account holders does not change, modify, or in any way effect the Trust's title to the precious metals in the repositories. As explained in Paragraph 8, above, an e-gold account holder can require e-gold Ltd. to deliver a whole bar or bullion unit to the e-gold account holder by returning a specified quantity of e-metal. However, no e-gold account holder can require a repository to release precious metals from the repository because no e-gold account holder has any title to, or ownership of, any precious in the vault.

11. E-gold Ltd.'s account database records transactions in e-metals only. When a first e-gold account holder transfers e-metal to a second e-gold account holder, the first account holder's account is debited that amount of e-metal, less spend fees. Onle e-metal passes between the account holders. Precious metals do not pass between the account holders. Title to precious metals does not pass between the account holders. The right of an e-gold account holder to remove precious metals from the repositories does not pass between account holders. A "payor" never transfers ownership of a precious metal to a "payee." A payee never receives ownership of the precious metal. The account holder is not in a bailment relationship with the repository. The location of the precious metals is not found in the record of transactions in e-metals on the e-gold Ltd. account databse, since account holders do not have title to precious metals. E-metals are simply precious metal-backed digital currencies.

12. E-metals and DigiMetals (the liabilities circulated in the DigiGold system) are not coins, ecoins, or digital coins. Neither contain serial numbers or digital signatures. Transfers of e-metals and DigiMetals are effected by book entry in an account databse. Cryptographic processes are used to authorize payment instructions, but transfer of the e-metal or the DigiMetal is always done by book entry in the account holder's accounts.

13. Omnipay provides a service to customers as exchanger of e-metals with a limited number of national currencies, and vice versa. Omnipay holds national currencies in its bank accounts and e-metal and DigiMetal in e-gold and DigiGold accounts. A customer who desires to exchange her national currency for e-metal will wire her national currency to Omnipay and provide instructions on which e-metal(s) she desires. When Omnipay receives the wired national currency, Omnipay transfers an agreed upon amount of e-metal from its e-gold account into the customer's e-gold account (Omnipay transfers the e-metal just like any other user). In a similar fashion, Omnipay exchanges e-metals for national currencies. For each exchange, Omnipay proffers an exchange rate.

14. Omnipay may need to replenish its e-metal balances by delivering precious metals into the e-gold system. It does this by delivering precious metals into the Trust's bullion account at the repository. Once the Trust receives confirmation of its receipt of precious metal in the repository, it notifies e-gold Ltd. that the precious metal has been delivered to the Trust's allocated bullion account at the repository. E-gold Ltd. then issues an amount of e-metal corresponding in fine weight to the amount of precious metal delivered to the Trust's bullion account. E-gold Ltd. spends the newly issued e-metal into Omnipay's e-gold account. Currently, Omnipay has the exclusive right to deliver precious metal into the Trust's bullion accounts.

15. An operator is engaged by e-gold Ltd. to operate the e-gold account database. That operator is currently Gold & Silver Reserve, Inc.

16. The Trust owns all of the precious metal held in the vaults that backs the e-metal created by e-gold Ltd. and informs e-gold Ltd. when new precious metal is delivered into the Trust's allocated bullion account at a repository.

17. The Trust does not hold the precious metal for the individual account of any person or e-gold account holder, that is, there is no specific relationship between any individual e-gold account holder and the Trust. The Trust has no specific obligations to return precious metals to any individual e-gold account holder. The Trust is only authorized to release precious metals with approval of the Escrow Agent and e-gold Ltd. as described in the Declaration of Trust for The E-Gold Bullion Reserve Special Purpose Trust.

18. The Escrow Agent verifies the amount of precious metal in the vault and communicates that information to e-gold Ltd. The Escrow Agent must sign off on any removal of precious metal from the Trust's allocated bullion account.

19. There is no remote terminal at the repository that receives and sends data to the e-gold account database, or any computers within the e-gold system, beyond an occasional email exchange.

20. DigiGold.net Ltd issues and removes from circulation, digital currencies called "Grams of Gold," "Grams of Silver, "Grams of Palladium," and "Grams of Platinum" ("DigiMetals"). DigiMetal is at least twenty-five percent backed by e-metals. The remaining backing for DigiMetal can include interest-bearing securities, selected on the basis of safety and liquidity. See the DigiGold Currency Contracts for more on the backing for DigiMetal.

21. DigiGold engages a contractor to operate the DigiGold account database for tracking transactions in DigiMetal. The DigiGold system allows payment instructions to be in bearer form, but to transfer DigiMetal, the DigiGold account database uses book entry transfer between accounts.

22. A person downloads a DigiGold client program, which holds a DigiGold.net account holder's key for authenticating communication with the DigiGold account database. The client program also keeps track of receipts and calculates an account holder's DigiMetal balance. A DigiGold account holder obtains DigiMetal exchanging a national currency for DigiMetal at an exchange provider, or having DigiMetal spent to his account by another DigiGold account holder. When a DigiGold account holder wants to spend DigiMetal from his account to another DigiGold account, he transmits payment instructions to the DigiGold account database, and DigiGold executes the instructions by making a transfer between accounts.

23. A DigiGold account holder (an authorizor) can create a preauthorized payment instruction. This payment instruction can be in bearer form, that is, the bearer of the preauthorized payment instruction can exchange the instruction for a payment of DigiMetal, provided the instruction has not been previously exchanged, and provided there is enough DigiMetal in the authorizer's account to back the instruction.

24. As specified in the DigiGold Currency Contracts, an amount of DigiMetal is issued by DigiGold.net Ltd. when it receives a payment into its e-gold account of a specified quantity of e-metal. This e-metal is used by DigiGold.net Ltd. as backing for the DigiMetal units that have been issued or to purchase other investments to be used as backing for the DigiGold Currency units that have been issued.

25. Omnipay can exchange a limited number of national currencies for DigiMetals, and vice versa.

26. DigiGold.net Ltd's account database records transactions in DigiMetals only. When a first DigiGold account holder transfers DigiMetal to a second DigiGold account holder, the first account holders's account is debited that amount of DigiMetal and the second account holder's account is credited with that amount of DigiMetal. Only DigiMetal passes between the account holder's. Precious metals do not pass between the users. Title to precious metals does not pass between the account holders. The right of a DigiGold account holder to remove precious metals from the vaults does not pass between account holders. A "payor" never transfers ownership of a precious metal to a "payee." A payee never receives ownership of the precious metal. The account holder is not in a bailment relationship with the vault. The location of the precious metals is not found in the record of transactions in DigiMetals on the DigiGold.net Ltd account database, since account holders do not have title to the previous metals. DigiMetals are simply digital currencies partially backed by e-metals.

27. The DigiGold.net Ltd account database does not store, record or in any way track the assets backing DigiMetal.

28. The DigiGold account database does not receive information from vaults or vault owners who operate the facilities where the precious metal is stored (that backs e-metals). The DigiGold account database does not receive any information regarding precious metals stored in the vaults from the vault owners.

DECLARATION

I declare under the penalty of perjury that the foregoing is true and correct.

Before me, a notary public, and and for the State and County aforesaid, on this 9th day of May, 2002 personally appeared Barry K. Downey who being to me personally known, and who having first executed the foregoing instrument in my presence and having been by me first duly sworn, did acknowledge the foregoing instrument as his free deed and act, signed, sealed and delivered by him for the purpose therein stated and intending to be legally bound thereby and intending that said instrument be recorded.