I was able to solve this problem thanks to a post found at:
http://ubuntuforums.org/archive/index.php/t-450044.html
It appears that Seahorse needs to be launched as root. I recommend
changing the menu launcher to use gksudo.
** Changed in: seahorse (Ubuntu)
Status: New => Fix Committed
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[Intrepid] Unable to encrypt a folder
https://bugs.launchpad.net/bugs/297206
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