Commentary: Ginko Wrapup – No AVIX, IPO, or Funds
July 31st, 2007 by Benjamin Duranske
[Editor's Note, August 5, 2007: VB is providing ongoing coverage of the Ginko collapse in the comments to this article. I probably won't run further standalone articles unless criminal charges are brought, a lawsuit is filed, or Linden Lab takes action.]
One more post on this and I’m punching the clock at the financial desk and going back to covering issues more directly related to law. That’s because after tonight, there’s not much left to cover. Aside from some cleanup once Ginko finally disappears, the story has mostly been told.
Cliff Notes: The big bail out everyone was expecting occurred. Second Life’s self-styled high-interest “bank,” Ginko Financial, was supposed to buy one of Second Life’s stock exchanges, AVIX, using money from an IPO that was to be held on, you guessed it, AVIX. It didn’t happen.
Why not? Because lot of smart people who understand finance, law, and ethics showed up to explain why that wasn’t going to work and ask some very hard questions. As a direct result, Ginko no longer has an IPO on AVIX, and is, apparently left to drown on its own (we actually find that last part out later, in a strongly worded, though poorly timed, statement from AVIX).
In the transcript below, we learn that Ginko has basically no money to pay depositors, that AVIX’s ‘Investor Allen’ claims he doesn’t think that a company promising 60% returns is paying old investors with new investors’ money, and (in answer to one of my questions, thank you very much) that ‘Nicholas Portocarrero’ is really a guy in Brazil named Andre. [Or maybe not, there's some reasonable debate about even that name, now.]
So if you’re into the SL financial markets, or have money in AVIX, or in Ginko, you’re going to want to pay close attention and work through the transcript of this meeting. It’s actually pretty entertaining, though you’re not going to think so if you’ve got a lot of money in this thing. But if you’re here for the highlights, you’ll probably be more interested in my one on one interview with ‘Nicholas Portocarrero’ (Andre Sanchez [Or Michael Pratte] in real life) from earlier tonight. Why? We got to the important stuff. He told me he doesn’t have your money. Well, not in any “liquid” form anyway.
Where did it go? Well, for that, you do need to go to the transcript, because at this meeting we learned that some went to in-world investments that he can’t sell for what he paid for them for, that some went to real-world investments (e.g. his websites) that depend on “potential,” and, (also via one of my questions… I’ll take tips in the lobby) that he’s been paying himself and his buddies a couple thousand U.S. dollars per month each out of deposits. How’s that grab you, depositors who are limited to $19 daily withdrawals right now?
Basically, he’s in ur bank, spendin ur monez.
Here’s the transcript link again. Settle in for a long read.
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74 Responses to “Commentary: Ginko Wrapup – No AVIX, IPO, or Funds”
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Like a terrier with a sniff of the rat, well done Benjamin.
If it was’nt for the fact that I have some “interest” which is now “intangible” in Ginko this story would be hilarious as well as dreadful.
Keep up the good work
Damen Gorilla in-world…
I’m sorry. I shouldn’t laugh because real money is involved, but seriously, this is a farce.
Silly little boys and girls pretending to be all grown up and taking about IPO’s and investors and mergers and dividends. The boys from Brazil have walked away with your money people. Textbook Ponzi, and quite an effective one as it turns out.
First – thanks for the hat tip. I am pretty much done with this myself. A few more posts, and I lay it to rest.
Next – I must tell you that, as someone who has lived more than half of his life in the Latin American/Caribbean region, it is unfair to think that Brazil is responsible for this – or that people from the region deserve disdain. Would the facts have been different if the person was from London or New York? No. Brazil was not a factor in this.
Lastly – Ginko still has a chance. Trust in WSE is probably the greatest failure of Ginko. It has stocks tied up in a market flooded with stocks but insufficient funds for the stock. In short, the hype bubble popped and stranded people. Ginko fell into that as well as other companies. And by AVIX even listing the IPO, well… figure it out.
Nobody – thanks for the comments.
First, I don’t blame Brazil. Wow. No. Of course not I hope you’re just saying that as a cautionary note based on your past experiences living in that part of the world, and not in reaction to something I wrote. If the guy had turned out to be from Wisconsin I’d have reported that.
It is interesting, legally, that he is in Brazil though, because it makes it a whole lot harder and more expensive to sue him.
Second, I can’t agree that Ginko *as it currently is formed* has a chance. If it reforms into a real bank, paying 5% a year, and sticking most of the money in a S&P index fund, maybe. But even to to that they’d have to just wipe out a whole bunch of deposits right now. As they are? The only logical way you can say that is if you think that there’s enough money left in there that’s been abandoned by people who just won’t participate in this run. Because we both heard Nicholas say that he’s got no liquid assets, and his definition of “illiquid” appears to be “assets that I’m not currently making 60% on.” He can’t sell the web sites he’s invested in because they’re not actually worth anything. He can’t sell the in world stock because to sell enough to matter, he’d crush the market (in other words, it’s not *really* worth what he though it would be). You know perfectly well you can’t promise 60% on deposits. What he should have done is made it a fund, let people invest and tried to hit 60%. But now he’s got this big liability, in all this interest. Another L$250,000 just hit tonight in interest. You think he made $L250,000 on the investments today? Every night it does that; it gets bigger the longer it goes on. No way. It can’t survive. Not as it is now.
No one blames Brazil.
The country is irrelevant. This is Second Life. It transcends national boundaries and cultures. What it doesn’t transcend is greed.
And truly – Ginko is a dead duck. In a few hours when the rest of the Ginko depositors catch wind of this, every last one of them will be clamouring for their cash. Every asset left in Ginko will be valued at fire sale prices. Depositors don’t want shares in some other fairytale operation in Second Life valued on a wildly optimistic multiple. You can’t realise the value of goodwill in a liquidation gentlemen. Benjamin at least seems to understand this.
I’m actually surprised that Mr Brazil turned up at all.
I would have thought the politic thing for him to do would be to slip away and sun himself in Ipanema for a month or so spending the money he fleeced.
This really is quite a disgrace. The Lindens should have addressed this issue long ago and I’m at a loss to understand how they could have turned a blind eye to a pyramid scheme running under their noses in the first place. I know they like to be “hands off”, but don’t you think tacitly condoning fraud is going a bit too far?
That was one strange meeting! Despite the fact that I kept crashing, it held my interest and even produced a few belly laughs. I just want thank Ben (and Nobody Fugazi at your2ndplace.com) for covering this fiasco and for asking tough and intelligent questions.
It is a shame that so many folks will be affected by the inevitable implosion of Ginko. I, for one, would really like to know just how much of my money went to strip clubs, recreational drugs and sports cars?
Nicholas Portocarrero of Ginko is a Ponzi scheme, so let’s not try to say it’s a legitimate business. All information such as financial statement is fictional. Ginko perpetuated the fraud by using depositors and investors money.
It’s unfortunate that peoples greed over ruled their integrity and intelligent.
We do need to help stop this scam and others from destroying the capital markets of Linden Labs Second Life virtual world.
I need help in making a list of people involved in this fraud to help me rule out SL residents with unethical character. It will be my blacklist of people not to have any present or future business dealings.
Please add to my list of names and the reasons why they should be on it.
Nicholas Portocarrero – Ginko Ponzi scheme.
Let’s get down to the co-conspirators;
Investor Allen: Benjamin, not, Ginko is not a Ponzi scheme. I have discussed with Nicholas extensively the investments that Ginko makes. I can assure you it is not a ponzi. I can also see their investment portfolio on AVIX. GInko is not a ponzi scheme.
How stupid do you think we are Mr. Allen?
Maelstrom Baphomet: Nicholas, will you still be committed to maintain the standards the SLEC is proposing? I heard mentioned continued co-operation, but you’re the one who’ll be stepping up to assume management authority.
Maelstrom Baphomet: The compounded growth of AVIX would be incredible. I think this is a huge risk, but it’s viable.
Dragon has no ethical standards other than his own agenda.
Madelena BnT: It seems to me that the basic infrastructure of Ginko is tight and that liquidity in light of market factors outside of the running of the bank itself have come to light. This merger seems a logical solution to the long term challenges of liquidity and when you combine these two solid infrastructures you will be left with an extremely viable and potentially lucrative investment
another ponzi tout
Marc Attenborough: its sounds to me like Ginko is refinancing it’s debt, so to speak.
Marc has no ethical standards other than his own agenda and No Payment on File so he cannot be tracked down by law enforcement.
IntLibber Brautigan: I’m extremely bullish on this merger, and I’m confident that this will mean a very bright future for both AVIX and GInko.
Shava Suntzu: Will the accounting standards be run by AVIX standards or Ginko standards, for transparency?
Who’s standards, scammers are us?
Dimitri Gasser: slec standards i hope.
SLEC, here is another scammer organization set-up to perpetuate fraud for their own political agenda.
I’m continuing to place deposits at Ginkos. What, am I nuts? No, I just prefer to build indigenous institutions the hard way, inworld, taking my chances, with other avatars, rather than listen to self-described, invasive outworlders who are “experts”.
http://secondthoughts.typepad.com/sec…depositing-to-g.html
There’s much more to this story than meets the eye, various interested parties fighting under the rug through proxies, and the efforts of one group of big players to put out of business another group of players by using as pawns in the “kompromat” game (compromising material) various bloggers, lawyers, pundits, do-gooders, irate citizens.
Actually, you are merely just tuning into this, Benjamin; we’ve all asked these questions for the past 3 years; we’ve all heard these answers, exactly as you are just hearing them now; we’ve predicted Ginko would fold; it didn’t.
I think you underestimate people who really have “skin in” in Second Life to make comebacks from the brink.
You don’t; it’s a game, a passtime, and a chance to show off your expertise and gloat about others’ misfortunes that you probably don’t get in real life. Enjoy!
Ultimately, even if I lose my deposits to Ginko, I find that preferable, in the effort to make a Second Life that is better than the First Life that continues to produce such experts and smart people like yourselves, that are unable to solve the day-to-day problems of many people.
The greatest irony of this sorry episode is that Andre could return to SecondLife as an alt next month, start up a new, equally reckless scheme of one for or another (despite the dishonestly evasive replies, I do not believe that Andre set out to defraud people from the beginning, but he undoubtedly did act with gross recklessness with other people’s money), and nobody could know that it is the same person.
That is why it is vital that the Linden Lab verification system verifies not just age, but also uniqueness.
And Prokofy – good luck with those investments: you’ll need it.
Hi,
I’m a reporter for SLOBSERVER.COM and MAGLIFE (French newspapers) and I went to WSE premises today in order to get some more details on what’s going on regarding the problems in SL financial sector.
After a few polite questions I was ejected and had to reboot.
I don’t know if that’s the right way to treat honest reporters in SL….
Regards
Nancy
Nancy – the grid has been pretty bad today, so it could be a lot of things other than WSE treating you poorly. I’d try again if I were you.
no no! I will not try again ! I will write…
They have now to face a class action… you know that?
I saw a lot of people trying to get details !
Something has to be done in order to fight this disdain…
Today’s update on the numbers:
I lost my data feed for part of today because Ginko changed the way they were displaying the information on their site to accommodate their new donation methods, but I got it back around 11:00 AM SLT.
Between 11:00 AM and 3:00 PM SLT, Ginko’s total deposits (and remember, if you’re new to these numbers, that they are only useful for tracking withdrawals) dropped from 192,918,722 to 189,799,057, or about 3.1m Linden.
Yes, that includes increases for deposits like Prokofy’s. Well, more accurately, it includes increases for Prokofy’s deposits — I’m not sure there were any others.
What’s got to be really scary to individual depositors is this: around 3m of that came out in what appears to be a single transaction around 1:30 PM SLT.
If I had money in this subject to a 5k (US$19) daily withdrawal cap, I’d be demanding to know who is getting special treatment.
In the UK, at least, insolvent businesses have a duty to cease trading, and not to give fraudulent preference to any of their creditors.
Prokofy’s words about supporting indigenous Second Life institutions are admirable. However, they’ll give no comfort to the girl I met last night frantically trying to withdraw any of her 400,000 lindens from a Ginko ATM. Perhaps you could give your money directly to her Prokofy, it might at least do some good there; certainly better than sending it down the wire to Sao Paulo.
Second Update Today – The reason that there has only been about 100,000 in (regular-depositor) withdrawals today is that that appears to be all that is in the system.
I wonder who got the 3m?
I just talked to a room full of angry avatars at the main Ginko ATM. They have all been trying to withdraw off and on for hours. Looking at the data feed I’m tracking, only about L$1000 has left the system over this time, never more than $L200 or so at a shot. Apparently a few people have managed to avoid learning what has happened, and are blissfully depositing a few Linden now and then, which are immediately scarfed down by the insatiable mob of withdrawers. Otherwise, there appears to be no money in the system.
Tyffany, why does your “girl” here put $400,000 Lindens in Ginko’s?! Is she nuts? It’s a pyramid scheme lol. And that’s just the point. Everyone wants to bang on Ginko’s, as if Ginko’s isn’t a means to an end, which is to make people who want to gamble $400,000 richter, and other people’s expense, eh? Why privilege this girl, with her largesse, and enable her to take out $400,000, when there are thousands of people who might only want to take out their $400 — hence the caps?
Is Ginko to blame for recklessly putting money on the WSE? Well, sure. But…could we not lose sight of the fact that the WSE itself is to blame for recklessly mismanaging the exchange and profiting themselves at other people’s expense? Seems to me that with all eyes on the “Ponzi scheme Ginko” now, no one has to look at the unsavoury WSE anymore…or ask hard questions about how the WSE and AVIX are intertwined.
No money in the system? Well, not surprising if they can’t get it back out of WSE, eh? I invite readers to look at all this data with a lot more scrutiny, and not accept merely facile equations. Duranske *needs* Ginko to fail so he can be proven right. And he may be! But…Ginko is the least of the problems in this scenario, which in fact began with WSE’s scandals of overvaluation of their buildings and property, bruoght to light by Shaun Altman, the scripter of the exchange.
Oh, and Duranske can focus his wrath — and the wrath of depositors — on me, and completely and conveniently remain oblivious of Eloise Pasteur, who defended Ginko back on the official forums; continued to defend them everywhere; and even today says openly on the SL Insider that she keeps her deposit in — and never question this pillar of the SL community, but kick an already-convenient scapegoat.
It seems to me that while everybody would like to get their self-righteous juices flowing, Ginko is as much of a victim of WSE self-dealing and corruption as anyone, and others who appear much more appealing as victims, shouldn’t be allowed to distract from that fact.
>Yes, that includes increases for deposits like Prokofy’s. Well, more accurately, it includes increases for Prokofy’s deposits — I’m not sure there were any others.
What’s got to be really scary to individual depositors is this: around 3m of that came out in what appears to be a single transaction around 1:30 PM SLT.
1. I didn’t make any deposits yet today, sorry to disappoint!
It is payday, however : )
2. Can we be sure that the transaction of 3m is going to pay preferred creditors? Can we back that up with more evidence showing a deposit somewhere else? For all we know, it’s a play on the LindEx to gain more income to pay depositors? I’m all for having a lot more curiosity about this entire show, and a lot less facile assumptions. Again, I have no reason to doubt that Ginko isn’t merely paying itself off, let alone creditors, as it’s a racket like others; still, as it has been a more transparent and responsible racket, things being what they are in SL, I’d simply like to get more information to judge the situation.
Also, I want to point out another aspect to all of this. Benjamin Duranske has been terribly intent on exposing the financial skullduggery of SL, and there’s no shortage of skullduggery to expose. But he admits “finance” isn’t his area. Law is. And yet, he’s been terribly reticent, circumspect, and cautious about exposing the same kind of judicial skullduggery that goes on, in a field he does claim as expertise. Where’s the exposes of Ashcroft and other justice-producers of SL?
>Between 11:00 AM and 3:00 PM SLT, Ginko’s total deposits (and remember, if you’re new to these numbers, that they are only useful for tracking withdrawals) dropped from 192,918,722 to 189,799,057, or about 3.1m Linden.
I asked Nicholas about this and he explained that this $3 million was from Investor Allen, and involved a trade from him, but Nicholas himself could explain it better, in more detail.
Prokofy – you are welcome to post here as much as as you please, but please stay on topic. #20 isn’t.
FYI – Eloise Pasteur today on Ginko:
“Ginko, for reasons which are probably impossible to fully unpack (gambling ban, the fact they’re the largest shareholder in WSE’s parent company, other run on the system e.g. thanks to reduced land prices), suffered a staggering run. Various investigators are uncovering a variety of dubious practises in their reporting, and interviews and public statements are hardly encouraging.
Ginko was, apparently, planning to buy AVIX, but did this in a rather round-about issue. This fell through rather rapidly, and embarrassingly, after a press conference called to announce the purchase.”
http://www.secondlifeinsider.com/2007/07/31…-a-mess/
I will back Ben up on this- finance is my area.
I took one look at the rates of returns offered by these SL “banks” maybe a year ago, and came to the conclusion that there was simply no logical way for this to be legit. I remember at the time Ginko was at something north of 60%/yr, but I didnt think to save any of the spread-sheeting I did.
Understand: we call a money manager “good” if he can reel in ~20%. Some of the hedge funds pull in more- in the neighborhood of what these SL banks offer- but they do it using very sophisticated financial models, teams dedicated to risk management, and *severe*( and often, as Bear recently discovered, dangerous ) amounts of leverage.
The problem with Ginko is not the WSE- it doesnt matter where they make their investments, period- its that they have made promises that are simply unreasonable to keep given the realities of illiquid SL markets, or even those of the real world. One has to wonder if that was intentional…
SL investors are now learning about counterparty risk the hard way- by seeing their bank dissolve, all their L$ with it. This ends in exactly one way: lawsuit- probably more than one.
A little more interesting math to toss in with the drtomaso’s good points about what real financial managers shoot for.
$1,000-$2,000 / month is how much Sanchez said he took out of the operation. He also said that he gave the staff $1,000-$2,000 / month. Ginko is, by my research, 2 years, 5 months old (Some say 3 years, but I can’t find any evidence of that, and their sites were registered 2 years, 5 months ago).
Anyway, that’s conservatively 29 months, at an average of $3000 per month, which comes to $87,000 in money taken out of Ginko deposits not counting money that they took out to “invest in” their own projects (e.g. web sites, etc.)
So they’re not even looking at 60%, 80%, 100% or whatever a year based on the deposits, but actually a much higher percentage, to make up for their take.
drtomaso, you can run the numbers again without a spreadsheet here:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
You have to multiply the Ginko rate by 365 first (since it’s daily). So .0019×365=.6935, which can also be expressed as 69.35%. Tell the calculator this rate, and a 100 deposit, and tell it to compound daily (e.g. 365 times a year) and presto. Even a lawyer can do it.
.0019 daily interest = a nice, even 100% a year return. .0010 daily interest (which they are offering now on “regular” deposits) = 44% per year.
And in case anybody missed it, they’re now also offering .0020 interest on 30 day notes (also longer notes, but why anyone would pick a longer one when the rate is the same on all of them is a mystery, not that anyone should seriously be contemplating buying these anyway).
.0020 interest works out to a whopping 107% annual return, the highest Ginko has ever offered. The first of these babies hits in, now, 29 days. If Ginko is still around then, think those people will expect to be able to immediately withdraw? How’s that going to work out?
Prokofy, i know you wish you were the one covering this story, making all the discoveries. Dont worry there will be many other top stories to cover.
Benjamin is not the only one covering the story, it has been like a team effort, different sources coming together to piece out parts of the problem. So dont hit on Benjamin because his getting the attention u’d like to get.
u keep saying u know its a scheme, so why are u making deposits.
Feel free to deposit money in Ginko to help an sl institution, you might as well send the money by paypal directly to Nicholas. All your doing is paying his bills. what do you think happened to the money collected over 3 years.
Do you know how much he paid for WSE shares? He bought many of the overvalued stocks, and today there is no market for it.
The problem with a system like Ginko is that its running on Other People’s Money and its not creating any value.
Right now he wants to continue collecting money. It would be more useful for you to propose that Ginko do a full disclosure of their source of income, thats a better way to build an sl institution.
How much was his profit from last year, why do you think his hiding it. Which of his investments made a profit?
How much did he pay himself?
You will be happy when he grows even bigger and eventually crashes much of the economy. Do you know about public sl companies with their dividends locked in Ginko.
Personally am against sl banking, if you want to bank simply use rl banks.
And Raise money thru the right channels.
Sl is my full time job as a content creator and i cash out my money, millions of linden every month safely to my rl bank account.
So people, keep your money in with your avatar or cash it out. sl banking is as good as money to strangers.
Prokofy I’m not sure I follow your reasoning in the the first paragraph of #17. My point was that no one will be able to withdraw any money – as there is none.
The vast majority of the money depositors put into Ginko will have been immediately paid to other customers as withdrawals (so it’s all gone). Clearly Mr Sanchez and his pals have taken a cut – so that’s all gone (and don’t you think US$87,000 sounds low)? And finally a portion will have been put into investments – either in world, on the WSE, or out of world (and what dollar value would you put on “shares” in an entity on the WSE as of today)?
In #24 drtomaso makes the correct point. It is simply NOT possible to earn outsized returns such as those offered by Ginko from any legitimate investing strategy.
It’s absurd to say that anyone “wants” or “needs” Ginko to fail. But should financial fraud be allowed to continue, much less prosper in Second Life? No.
This is not gambling in the sense of roulette or blackjack – we may at least assume the players of those games understand the risk.
The residents who were crowding the Ginko ATM last night, futily trying to withdraw even a single Linden and telling each other that “this will be alright” and “we need to give Nicholas time to sell his shares” in most cases clearly did not understand the risk.
I’d welcome Linden regulation of such finance activities in Second life, but I’m sure everyone agrees that this is highly unlikely – at least in the short term. Unfortunately in the meantime more people are going to lose more money playing a game they do not understand.
The 2 Ginko/AVIX co-conspirators is in the SLEC.
Second LIfe Exchange Commission (SLEC)
SLEC Board of Directors;
Marc Attenborough
Chief Financial Officer
innovativeceo@yahoo.com
Maelstrom Baphomet
AVIX Representative
Lindsay Druart has 2 companies listed as members in the SLEC.
Company Symbol CEO Member
L&L Bank and Trust LNL Lindsay Druart Yes AVIX
L&L Rentals & Sales LLL Lindsay Druart Yes WSE
Lindsay Druart of L&L Bank and Trust is offering 2.1% weekly x 52 weeks = 109.2% annual interest.
Investor Allen loves these money making mochines.
BTW, The 2 Ginko/AVIX co-conspirators is in the Allenvest Investment Capital.
LNL: L&L Bank and Trust
Prospectus
The bank with the face that you can see….
Dear Potential Shareholders,
L&LBT is backed by professionals that are extremely familiar with the workings of Second Life, currently running a successful business traded on the WSE. You will be more than pleased with our banking as the interest rate is currently 2.1% weekly.
Business Overview
Currently, L&LBT has savings accounts open and available for customers with a 2.1% weekly payout of interest paid to all accounts on daily.
100% of LNL’s IPO representing 20% of the company as a whole has been purchased by Allenvest Investment Capital and Allenvest Financial Bank, a company owned 100% by Allenvest Investment Capital.
AIC: Allenvest Investment Capital
Board of Directors
Chief Executive Officer: Investor Allen
Director: Maelstrom Baphomet
@27 “I’d welcome Linden regulation of such finance activities in Second life,…”
LMFAO
Ok .. 1) there’s no a priori reason to think returns of 100% or 1000% annually are impossible in a virtual economy. The rules are completely different and people trying to import RL ‘knowledge’ without checking the assumptions are just amusing. How long is a ‘year’ anyway?
2) Nicholas, crook or not? I come down on the side of not. A real crook would either not have turned up or just told people what they wanted to hear. Notice that that doesn’t mean he hasn’t *behaved* like a crook or that he won’t in the next few days/weeks. And certainly not very up-front about some of the money being invested outside of SL which *would* make you worry about those promised returns.
But let’s reserve a little bile for one of the other villains of the piece LL. They can’t behave criminally of course, because they make the law up as they go along. But greed! Oh my word.
They turn off gambling in a way guaranteed to hurt lots of unrelated businesses and investors (and hey, let’s have some sympathy for the related businesses as well – they were just trying to make a living). They do this for their own business needs and invoking their powers of summary execution without trial (or charge, or evidence, or public scrutiny) for any AV not playing ball.
They dump vast tracts of land onto the market to rake in those dollars and to hell with what that does to the virtual economy. They keep land taxes at eye-wateringly high-levels in relation to the value of the land in question.
If there’s a lack of liquidity I for one know why – LL have hoovered up way more than the economy can support and continue to do so.
So no. Keep LL as far away from it as possible. Talk about putting a fox in charge of the hen-house.
1) there’s no a priori reason to think returns of 100% or 1000% annually are impossible in a virtual economy. The rules are completely different and people trying to import RL ‘knowledge’ without checking the assumptions are just amusing. How long is a ‘year’ anyway?
Returns of this magnitude are always theoretically possible in any environment, FL or SL. But lets not kid ourselves though, the rules are very much the same, or worse, because the business environment of SL is even less regulated than FL, less populated that FL, less liquid than FL, and theres no source of leverage within SL.
I humbly submit that if Ginko’s portfolio was really netting returns of that magnitude, every hedge fund on the street would be jumping in to SL to get a piece. So far the only “hedge funds” in SL appear to be scam artists, the self deluded, or for lack of a better description: “hedge fund roleplayers.”
Where could Ginko have gotten 100% profits per year? The traditional answer is the way banks have operated for centuries. Money comes in as deposits and interest payments on loans at rate Y. Money goes out as loans and as interest payments on deposits at rate X. Make Y > X, and the bank turns a profit. Was Ginko doing this? By their own admission, no- they were loaning the money to themselves, in direct contradiction of their stated investment strategy detailed on their web page. Plus, who in their right mind would take a loan at over 100% APR, in g
Now, theres no evidence of this, since they dont release financial statements, but they claim to have run this as investment pool. ie: Money in as deposits, and investment income, money out as investments and interest payments. The problem is that by their own admission, Ginko appears to have invested in itself- websites, a large stake in the WSE, not to mention salaries for those involved. Reserves were less than 5%, meaning 95% of the money left the depositors’ accounts, and went, well, by their own admission, to Ginko in the form of illiquid investments.
In short, whether by design or because of illiquid investments, what has been happening is that new depositors are covering old depositors withdraws. This works for a time, until either (a) the population of new depositors drops or (b) some event causes the number of withdrawls to shoot up higher than new deposits can cover.
As far as the destruction of the gaming industry in SL- lets be fair to LL on this issue. Gambling, whether on or offline, is illegal in the state of California. LL is compelled to follow the law. I feel bad for all those people who thought the law didnt apply to them, but ignorance of the law is not an excuse. Investing in or building a gambling business in SL was risky for precisely this reason, and lots of people had been talking about that for months.
I happen to agree with you on the land issue- land is really the only asset of any measurable value in SL, and while demand seems to be high, LL provides near infinite supply.
Well, one question has been answered this morning. The ages old debate as to whether Ginko is a Ponzi scheme (paying old depositors with new depositors money) is over, because that is precisely what is happening at this very minute, and you can observe it first hand.
There’s a crowd of people at the main Ginko ATM. Occasionally, someone deposits a few hundred Linden into a secondary ATM (presumably someone who doesn’t even know this has happened) and it is immediately withdrawn by the fastest typist in a crowd at the main ATM. The transactions show up as +100, -50, -20, -30, one right after the other. An easy way to see it is just to reload the Ginko web page a few times, but if you want to make sure, you can drop twenty Linden in, refresh the Ginko page, tell the room what you did, and watch it disappear.
In other words, funds from new depositors are, at this very moment, transparently being used to pay for old depositors’ withdrawals.
Sort of idly, I’m wondering how long this perfect, self-operating Ponzi can go on without any new money? If the ATMs just stay up, newbies will occasionally find them and deposit a few Linden for some lucky former Ginko depositor to pick up a few minutes later.
Will some die-hards still be arguing, “It’s been going on for years, it can’t be a Ponzi!” as long as the ATM network is functioning? I suppose Ginko can “operate” like this as long as the ATM owners’ accounts are active.
Which brings us to an important question. While I don’t really expect Linden Lab to do anything, from a legal perspective, there’s an argument that they are tacitly endorsing this now. They ban people for running scams (e.g. selling nonexistent islands) and stealing Lindens from each other in other contexts (e.g. misusing a password to rip off the WSE) and the reality that this is a Ponzi scheme is now completely inescapable. Well, it’s inescapable to everyone except the usual crackpots and, sadly, the most vulnerable part of the Second Life citizenry: non-English speaking Second Life users who haven’t had coverage translated into their language yet (several of these people came to the main Ginko ATM today, clearly distraught.)
Before, it was at least arguable. Now, it is crystal clear what this is. And particularly in light of Rosedale’s relatively complimentary comments about Ginko last October in an interview, were I running the inevitable class action suit, I would very likely name Linden Lab and Rosedale in addition to the perpetrators.
One note regarding motivation. Covering this, though intellectually engaging, is emotionally painful. It’s both the most interesting story and the least fun story I’ve covered so far. Sure, I like being right as much as the next guy, but I would trade being right in a heartbeat for Ginko to just pay off its account holders — at least their initial deposit amounts — and simply disappear. I would love to trade being right for the people I am talking to every day not losing everything they’ve made — through their months, and sometimes years of efforts, building, scripting, and selling in Second Life — to these greedy, stupid, scam artists.
In fact, I challenge Ginko to do that; fix this. Andre Sanchez: even if you have no conscience yourself, or even if you are sure you were right and don’t know how this failed, do this to make me and Nobody Fugazi and Anshe Chung and the Illinois Journal of Business Law and everyone else who has hounded you look bad. Hit your savings. Sell the car you bought with the $87,000 you took from these people. Cover these peoples’ deposits and go away, and you’ll not only avoid an almost certain lawsuit and a potential criminal investigation, but we’ll all print how you turned out to be a good guy after all.
You know, I’d actually love to be wrong this time.
Ben,
That just isnt going to happen. The money formerly deposited into depositors accounts has been removed from the system at a rate of 95+%. That money has be removed from the system, changed from L$ to USD (or whatever) and then spent on goods (that depreciate) and services (ie: webhosting, sim fees, salaries). Some of it has gone back to other account holders, but only those lucky enough to get out in time.
The bottom line that account holders are just now waking up to is that that number that represents their account balance is a work of pure fiction. The principal investment was removed, spent on illiquid assets (and salaries for the 20 something year olds running the show), and by definition it cannot be gotten back. The interest earned? Well, that only existed on paper, as long as deposits outweighed withdrawls, the fiction could be masked behind a wall of opaque accounting.
This little escapade could really, really kill second life. Last I checked there were something like 5k account holders. While this represents only a tiny fraction of the estimated 500k active unique accounts, these 1% represent la creme de la creme of SL: people who through hard work or use of real currency have been contributing to the SL economy to the point that they have disposable income sufficient to invest in savings accounts.
Those savings are, for the most part, gone. Every dollar redeemed at this point represents a dollar lost by someone uninformed making a deposit.
What is the natural reaction of someone who just sees months of hard work (as represented by their account balance) disappear overnight through no fault of their own? Do you think they go “Oh well, thats the way the cookie crumbles!” and move on to even loftier heights in SL? Or do they say “once bitten, twice shy” and move on to less risky forms of virtual entertainment?
drtomaso – Thanks for your comments. I suppose you’re right. It’d be nice if this worked out differently, but I, also, am frankly certain the money is gone and they’ll never try to make it right.
And of course, you’re dead on about where the money went. That’s what this whole series has been about, in the end.
Some of the people who are losing money were investors who went into this knowing it was risky, but I think some — probably a lot — believed the large print and really didn’t understand the small.
That’s why Ponzi schemes — paying early depositors with later depositors’ money in order to achieve apparent, false high rates of return — are illegal.
My question now is this: since this has, finally, been exposed as exactly what it is, shouldn’t we expect Linden Lab to, at minimum, ban the accounts? They’ve acted on short term fraud and theft before, and while long-term fraud certainly presents more complex issues (e.g. what should Linden Lab do with the minimal in-world assets that are left) there is an reasonable argument that failing to act now that it is clear what has happened exposes Linden Lab to liability, at least for any deposits made from this point forward.
Today’s Numbers
There has been very little change in the overall picture, mainly because the account depositors are tapping is totally out of money. For more information, see post #31 above, and Nobody Fugazi’s ongoing coverage at Your2ndPlace:
http://www.your2ndplace.com/node/317
People are just taking out whatever tiny scraps are deposited as soon as they’re deposited now and it’s just sad.
Did anyone else notice that Maelstrom guy saying he had been in SL since 1997 and had always seen Ginko ATMs.
–Time goes by,
NO DOUBT Nicholas angrily IMs him—
Maelstrom later makes an obvious cover by saying
hes been in SL for 2 years…… and had always seen Ginko ATMs.
LOLOLOLOLOL
@30
The one meta-rule that does seem to apply here is that ‘high return’ = ‘high risk’ and vice versa.
I’m fairly resigned to never seeing my Ginko deposits back .. and if I do it will be a pleasant surprise. I can shrug and live with that. I spread my deposits evenly over every bank I could find in SL, so all that scares me is a spill-over into the whole sector. I’d still rather grit my teeth and bear it than see regulation .. regulation is ultimately a tax .. it is depositors’ money being taken to pay for bureaucrats’ pensions. Nobody can make any sort of meaningful guarantee in SL except LL .. and we need enforceable contract law a lot more than regulation of the financial sector ;-)
Briefly on the gambling topic .. I do agree with you that LL probably had little choice other than a ban. The wisdom of not having moved from CA once the business went global is another matter. In fact, would you base any global business in the US given a choice, with a Congress that is so arrogant it believes in extraterritoriality as a concept (only its own mind .. not any other country’s ;-)
No, my criticism of LL was the way they handled it. You can stop a car by slamming it into reverse instead of applying the brakes .. don’t be surprised if it doesn’t drive as well afterwards …. Plus the resort to summary execution of AVs as a method of enforcement. So typical.
Actually forget enforceable contract law too .. we need Magna Carta first. How about some due process for Residents suspected of heinous crimes and protection from arbitrary seizure and forfeiture …
(Even a ToS that was binding, bilateral and not subject to arbitrary revision would be a step in the right direction.)
Dream on …
You don’t have to look at any numbers or ATM statistics to tell that Ginko was a Ponzi. If you read the transcript carefully you’ll see Nicholas pretty much admit it bluntly, as follows:
Nicholas Portocarrero: This one of the key things features of highly profitable investments.
Nicholas Portocarrero: We did not expect to have to liquidate them
Benjamin Noble: What?
Nicholas Portocarrero: as our growth has always been very strong
Isn’t this a straightforward admission that they were paying current depositors with new depositors funds?
Gil-
I am totally with you on the risk vs reward mantra. I also understand where you are coming from on the gambling issue- I can imagine that if I had spent months organizing, building, and outfitting a casino business, I would be extremely pissed right now. The only reasonable solution would have been for them to have never allowed it in the first place- but hindsight is 20/20- given the law (and its not just Calif.- its nearly all US states) the only appropriate, legal response is a full stop. And they have no recourse to do anything other than block violators accounts. One would hope it wouldnt be done at the drop of a hat- it should be possible for them to “see” gambling transactions easily enough.
I want to go back to the issue of “banks” in second life. Banking in FL is a institution that exists after a long history of fraud/corruption/errors and correction/regulation. When you make a deposit in a FL “bank”- it is insured not only by the bank and its private insurance, but also by the US government. In exchange, the bank is required to keep reserves to cover withdrawls. How much is usually a product of the balance of accounts, the credit worthiness of the bank, how much transparancy there is in their accounting, etc. When problems arise, there are regulators who can step in, courts that we can go to to resolve our disputes, and laws that serve to protect me from their malfeasance/malpractice.
None of that exists in second life.
“Banks” as they exist in second life are more like unsecured investment funds. Your money is gone, replaced by “investments” you had no choice over. To make it even worse, in Ginko’s case, you have little knowledge of what the investments actually are- for all you know he could have purchased a bridge in Brooklyn.
Banking is an extremely advanced concept in society- you are giving up short term access to funds in exchange for a commission. What are the risks?
Systemic Risks: theres always the risk that the entire economy could collapse. If LL goes crazy, printing money and devalues the L$, you would have been better off converting the money you had into “tangible” assets like land. Obviously, LL has a vested interest in seeing this *not* happen, so they created money sinks to curb inflation and trading caps to keep the currency value stable.
Credit Risk: Your money is being used by the “bank” to loan out to other entities. There is always the chance that they will be unable to pay back the loans, and thus you wont be making 100% yoy.
Counterparty risk: this is the killer one for me. You have no idea who this bank is, where it is operated from. Sure you have a name (Nicholas Portocarrero nee Andre Sanchez) and a place (Brazil) but how can this be verified? Tomorrow afternoon Nicholas Portocarrero could close his accounts and disappear from the grid forever with 87k USD of your monies, and as near as I can tell, its all well and legal. This goes for every financial transaction in second life. When I buy a prefab building from a vendor, I am taking a risk that I dont know who I am dealing with and I might be defrauded- but the L$ amt is small, and I have seen and used lots of vendors before, so it usually doesnt trouble me. These banks take in huge sums of L$- promise returns that far exceed what is reasonable to expect, and do so insisting that they will neither tell you who they are, where they are, or even how they intend to deliver on their promises.
Update – With no significant change in the finances for the second consecutive day, Sanchez posted this (as ‘Nicholas Portocarrero’) in his forums, and it was reposted to the official SL forums:
People’s account balances represent money I owe them, nothing more. The accusations of ponzi and fraud don’t even apply. This would be true even if I had taken all the money deposited and burned it in my backyard, which I have not. I did not take deposits under a false pretense. I did not promise to do anything specific with the money, or to keep anyone informed of what I was doing. I did not promise any specific time frame within which the loans would be repaid. I have no obligation to release information on my off-world ventures, period. I have no obligation to release information on my in-world ventures, period. I have no obligation to meet any withdrawal request under any specific time frame, period. When I do any of these things, it’s as a convenience to those who choose to do business with me and this convenience needs to be balanced against a variety of things, such as my long term ability to honor this debt and my need for privacy. I regard privacy as important, as such I am unlikely to release information from my off-world ventures. I regard the long term as important, as such I will not be liquidating assets to ensure that a few can withdraw “RIGHT NOW”. You don’t have to trust or do business with me. I will honor my obligations, but I cannot do miracles. Either be patient or cash out (sell your balance to a third party, buy bonds and the sell them on the WSE or keep trying the ATM until you get lucky).
I posted a repsonse, here:
http://forums.secondlife.com/showthread.php?p=1612859#post1612859
Update – Ginko’s rate on regular deposits just dropped to .01% daily, or 3.65% year, well less than many real life banks. They are still offering a laughable .25% daily (148% yearly) on longer term deposits but no one on the forums is defending them any more. It’s clear to just about everyone what is going on.
There’s a summary of the impact of this in the post below. The post also includes an observation that if Luke (of WSE) has any scruples, he will discontinue new Ginko bonds people are being forced toward and refund investors’ money, as it is obviously being used for what is now a unquestionably an illegal financial scam. Not a bad point.
http://forums.secondlife.com/showpost.php?p=1613088&postcount=281
From the Forums, from ‘Portocarerro’: “Listen, I accept that Ginko Financial is not going to grow in terms of deposits anymore. The only question now is what is the best way to ensure that people’s needs can be met properly.”
So it’s done.
To anybody who is reading this who has lost money: please, stick around Second Life. I met you covering this. You’re the builders, scripters, entertainers, artists, and business people who make this place so interesting. Don’t deprive this world of your talents just because some jerk took some of your money. People get burned in this kind of thing every day in real life, sometimes for a lot more money. So stick around, keep making Second Life what it is. You’re right in the middle of an incredibly supportive community.
Also, want to credit a post I forgot I’d read way back when and just saw in the forums again. “Desk Jockey” ferreted some of this stuff way before others, including me, and described it clearly given what was known then. A lot more has come out since, but a big retroactive tip of the hat from me. There are other articles floating around too (obviously there was Anshe’s thing, but too much personal motivation made that a non-starter) but this post put it all together — with numbers — early.
http://forums.secondcitizen.com/showthread.php?t=3306&highlight=ginko
Desk Jockey, from the future, you look like a Jedi to me.
Arrrg! My employer has these forums sites blocked. Now I will have to wait til tomorrow to get my fix.
Honestly, this whole experience has been very educational- outside of small third world nations, its nearly impossible to witness a systemic financial collapse like this. Enron was close, but that was small as a percentage of the overall economic picture. Ginko is *the* 3rd party bank in second life. Make that “was”.
I am kind of amazed at his forum statement. Basically he’s saying if you do business with him, you get whats comin’ to ya. This individual is a fiscal psychopath.
I cannot get to the WSE site (blocked as well)- can someone look and tell me what the interest rate is on deposited funds not in a portfolio? Every SL bank and exchange that I have looked at has the same basic operating model: offer *insane* and unrealizable rates of return to lure in new depositors. I have yet to see a single “bank” that didnt look exactly like a ponzi scheme.
Some are better than others in terms of giving you a look behind the curtain with less-opaque-than-others financial reporting, but they are all hoping you wont put them to the test by trying to actually withdraw your fictional account balance.
drtomaso – I’m not sure exactly what I’m looking for there, but they say they’re paying 15.95% p.a. on deposits at “OurBank.”
A reader sent me a facinating and disturbing list in-world of maybe 30 “banks” offering from 15% to 500% yearly interest. I’m not sure exactly what to do with it because I’m trying to steer clear of making VB too financially focused, but it’s just jaw-dropping.
A lot of these places are in their infancy, so depositors at the “hey, look, they really DID pay me 150% interest on my three dollars” point, and about to head into the “maybe I’ll try three-hundred dollars…” phase. Which, as we know, is followed sooner or later by the “I can’t withdraw? Noooooooooo” phase.
I’m guessing someone is going to have to get sent to jail — or Linden Lab is going to have to get named as a defendant in a suit — before this ends.
This list is actually the most disgusting thing I’ve seen in Second Life, and that’s saying something. The crap that people splash around to show what’s disgusting in Second Life (e.g. the Herald’s current “expose” on, uh… bodily fluids) generally doesn’t harm anyone. This is a list of thirty people who are doing everything they can to flat-out ruin the experiences of other people in Second Life, for their own profit. It makes me sick.
Which leads me to this: probably the thing that’s bugging me most, right now, is that otherwise intelligent commentators are still somehow shutting their eyes to this. The only thing I can come up with is that it hurts their “virtual worlds are just different” argument to admit that real life economics does matter. I just don’t understand. The laws of economics didn’t change four years ago. We’re still people talking to people, doing business with each other. The fact that we’re selling tiny software programs that look like shirts and hats and stuff doesn’t change the fact that sales are sales, money is money, interest is interest, and investments are investments. I really just don’t understand how anyone can see it otherwise — it makes no sense.
But some people, big names, appear to still be blind to the problem. For example, assuming that the posts on Prokofy’s blog purporting to be from Gwyneth Llewellyn — generally a thoughtful SL commentator — are accurately attributed to her, she’s suggesting people still deposit money in Ginko itself. (This is in the thread where Prokofy claims to still be depositing too.) I don’t see how anyone can give that advice and not just burn with shame at this point. Particularly a thoughtful person like Gwyn. They’re not even offering bank rates now. The guy running it has said, “I accept that Ginko Financial is not going to grow in terms of deposits anymore.”
I don’t care if it’s “homegrown” or “from the people,” or whatever — it’s a homegrown fraud. It being created in Second Life doesn’t automatically make it good somehow.
I know this isnt a financial site- its a legal one. And I definitely appreciate the attention you and others are giving this.
From my point of view, this is indistinguishable from a legal issue. The problem here is that there is no in game dispute resolution system (ie virtual civil courts). There is no basis for virtual contract law. There is no “authority” to compel contracts to be upheld- the worst thing LL can do to an offender is ban them. There is no way to even collect evidence to show that you have been defrauded by one of these hucksters. All LL can say is “On such and such a date, you gave X L$ to av Y. ” The promise that your generosity was based on is even less binding than verbal- at least with a verbal agreement you know who the parties to an agreement are!
In that environment, legitimate banking is simply impossible.
In my research I even found a SL insurance company that for 1% would insure your deposits. Just what we need! Even more counterparty risk- now instead of losing 100% of your investment, you can lose 100% + 1% x # number of time periods! (To their credit- they have delisted Ginko)
You’re exactly right on how the lack of any kind of contract system is ultimately behind this. Without one, it’s a barter economy. But of course, with business creation opportunities one of the big draws, everybody want to be a banker, raise money for their businesses, make investments, etc.
I was thinking about this and thought, why don’t I just start a fair bank? Loan out money at 11% interest, and give depositors 7%. But unless I collected RL data from people, as in, credit cards that I could charge if they defaulted, I’d be too afraid of even that risk. Which gets to the heart of it. Verifiction? Bring it on. It’s the first step to making any of this work. You could always do this anyway and tinker with the ratio until you got your default rate right I guess, but I have a feeling it’d be astronomically high.
(On coverage, besides the overlap in securities law and investing issues, the fact that we’re in criminal law territory here makes me pretty comfortable running this stuff. Plus, I’ve gotten some really interesting emails from some of my lawyer readers who don’t usually read the rest of the SL blogosphere.)
One more – I made roughly this point in a comment over at your2ndplace.com first in a response to a response to a post, but I want it to be here too.
We’re now to the point in this rolling disaster where people are starting to try to justify the long haul. I’m hearing lots of talk of this “liquidity problem.” It originates from Sanchez, (as ‘Nicholas Portocarrero’) in the forums at Ginko’s site, and it’s a big lie too.
Let’s be completely straight here: there is no “liquidity problem.” The problem is very simple. Ginko has not made anything close to 60% a year on the “investments” it has made, but that’s what they owe depositors. They’ve spent the depositors’ money on 1) expensive builds that are mainly unrented, 2) Hope Capital stock, 3) web sites that have “potential,” and 4) somewhere between USD $58,000 and $116,000 in “salaries.”
Calling that a “liquidity” problem is silly – it’s not like he owns a big box of gold bars and the gold market doesn’t open until Tuesday. He owns a big box of dog turds and no one wants to buy dog turds. He says “liquidity” like it’s a big important word that explains everything, but it’s just a lie. He can’t sell his investments for even what he paid for them, let alone what he owes people right now. That’s not a short term liquidity problem, that’s a fundamental flaw inherent in every financial fraud like this.
And that’s really the problem, because his depositors, right now, would be tickled pink to get their money back. Even-steven, no interest payments at all. A lot of people are asking him to do exactly that in his own forums right now, and he’s mumbling nonsense. Why? Because he’s not only not made 60% a year, he’s actually been losing money (meanwhile, paying himself and his employees).
And here’s the kicker. There are 30 banks promising these kinds of returns in Second Life, and they are all doing exactly the same thing. This isn’t going to end until somebody gets sent to prison or one of the victims sues Linden Lab.
[...] As people doubt on what will happen to Ginko Financials, as it runs out of money to pay depositors and withdrawn the recently up Secondary Offer in WSE, what’s next for Ginko? Will they be left behind by JTFinancials, owned by Arbitrage Wise, CEO of JTFinancial and Wise Metaverse who just purchased AVIX - which will be named from Allenvest International Exchange to SL Capital Exchange (SLCE) after the merger takes place. [...]
I’ve been taking a (painful) daily stroll through the Ginko message boards of late. Even the die hards are starting to realize what is happening.
Today’s post is about the new queue (“cue” in several places on the Ginko site) which is apparently designed to clear up once and for whether this is a Pon… er, a Portocarrero scheme.
Now, when I put a dollar in, it thanks me for the dollar. Then when I go to withdraw the dollar, I have zero chance of getting it rather than a tiny chance like yesterday (based on my typing speed) because now, instead of letting it go first come first serve, you get a queue number. Mine was 1899. There were 1898 people in front of me to get paid out (all of who have to have L$5000 requests pending).
So who is getting screwed here? Who? The few people who haven’t heard yet. And I’ll say again, those are going to be in large part non-English speaking Second Life users who don’t get the blogs translated into their languages. And, of course, the very, very stupid. Shame on anyone who is still encouraging deposits.
But presumably, the guy at position #1 gets the dollar, right? I mean, they’re screwing some people but paying others, right?
Well, no. At least not according to this guy.
——————————————————————————————————————–
Posted: Sat Aug 04, 2007 11:18 am
Post subject: Stern Warning for All Potential Investors
As my latest comments on the “lost” transactions from this new withdrawl system, I’ll post this to see how long it takes for the people at Ginko to remove it.
Ginko Financial was set up as a bank, and institution designed to store money and invest that money to return a dividend to it’s investors. As the reserves of Ginko have been depleted, for what ever reason, they are now telling us that our money will be returned to us after more money is deposited. Well let’s see, that doesn’t mean that someone at Ginko is going to deposit it, it means that people who are unsuspecting of what’s going on are expected to deposit money into an institution that’s bankrupt. Once someone deposits their hard earned lindens into their account, someone in the “CUE” will automatically get that persons money. Money that’ll never be invested as the “bank” owes money to other people who have done the same thing.
Now the latest trick, con, swindle or what ever you want to call it. Let’s say your number comes up in the “cue”, you account balance is lowered by that amount but guess what, NO MONEY IS SENT TO THE AVATAR!! This makes the transactions history for the institution look like something is still working within, yet all it does it prove that the institution is truely stealing our lindens for whatever reason.
If you want to restore confidence, which I highly doubt you really care as you’ve lost nothing, is to use YOUR lindens to pay people what they are trying to withdraw. I highly doubt that this will occur as it’s been explained, “Is only a game”.
Well I have to say, you’ve played the game well and screwed hundreds of people out of their lindens. You should feel confident that you’ve added one more nail in the coffin of Second Life. With them adding more and more restrictions to the “game” I believe the end is near for the whole virtual experience know as “Second Life”
But rest assured that the owners of Ginko and all other “banks” won’t lose any of their real life money as they’ve already gotten theirs out of the institution.
——————————————————————————————————————–
Incidentally, we’re on day nine of the “bank run” due to “liquidity problems” now. I wonder when their tier is due? Anybody know?
Update – Day 10
Ginko’s ‘Hinoserm Rebus’ just sent a notecard to all Ginko depositors, copied below. Summary: they are “several months” to a solution. There is no information about what that “solution” is. They are increasing the nominal withdrawal limit to 1m (that means nothing because no one can take out even $1L right now, but it should let us get a better idea of the extent of the claims anyway once they all pile up).
It’s just evil that they are not closing down deposits right now. So how about it, land owners? You going to let them use your property to perpetuate this? If you return their ATMs it will at least limit the future damage, and you’ll be doing your tenants a big service. Something else that might help: if you’ve been scammed here, file an Abuse Report about it. Point Linden Lab to this coverage. What Ginko is doing is just as illegal as selling fake land, and much more broadly damaging to the economy and community.
Notecard follows:
———————————————————————————————————-
Notice Regarding Current Situation 08/05/07 02:57:38 PM EDT
___________________________________________________
I would like to personally try to explain some of what’s been going on.
About a week and a half ago, we saw an increased number of withdrawals; the time to speculate as to why this happened has since come and gone, so I will leave it at that. No matter what started it, the result is the same: We have expended every possible short-term resource, and are still unable to meet the current demand for funds. We have attempted several different things to remedy the situation (which is in short why the interest rates and limits have fluctuated wildly), but none of them turned into a viable permenant solution.
For the time being, we have decided to continue doing business normally, but leaving the withdrawal queue in place with an expanded L$1,000,000/day limit, to give an indication as to where the end of this situation may be. However, a realistic estimate could possibly extend in to the realm of several months.
It may be hard to believe that we would expect people to stick with us, especially after how poorly this situation has been handled, but a large number of you continue to show your support, and I still have hope of a second chance at fixing the problem.
For those of you who wish to withdraw your funds, you may wait in the queue, or cash out to Ginko Perpetual Bonds, which is currently the only option if you don’t wish to wait the seemingly indefinate period of time it could take to refill the reserves.
I would also like to personally appologize for the lack of communication and the diminishing customer support during all of this, but through all of the changes that were being made it is impossible to keep my support staff fully informed, and usually I am the last person down the line to receive factual information — and too often the first person to relay that information to you.
I thank everyone for your continued support of Ginko Financial, and hopefully with time we will be able to continue through this situation and get things put back right.
Hinoserm Rebus
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Its simple….Just withdraw your money from Ginko and see whats left. At some point the house of cards will tumble.
Last time i checked there was over 30m in the queue to withdraw, seems like its the beginning of the end. (based on the limits imposed this will be an issue for the next month)
By pushing back the maturity date ginko is just delaying the ineviatable crunch time.
Seems like the people holding term deposits will be left holding the hot potatoe.
And as for ‘banks in RL have runs on them” , yea and in the real world people also go to jail and and forced to declare bankruptcy, and companies are forced to liquidate assets by regulators. Instead we just hear you wining about some bad investments. 9m shares in HCL between 2-5 bucks. That could leave a massive hole in your portfolio. 18m-45m
AVIX? always has been a scam, run by scammers. ’nuff said
The house of cards is already laying in a heap on the table. There really is only one ethical way for Ginko to play this:
Step one: freeze all deposits and withdrawls. No more money in or out.
Step two: Liquidate all assets, at whatever the market will bear.
Step three: distribute fire-sale proceeds to account holders in proportion to their account size.
Step four: close down Ginko
Now, can Nic come back with a Ginko II? Maybe- but I suspect it will have to have a much more open standard of accountability and be much more translucent if not wholly transparent- otherwise the only people to deposit will be the naive, retarded and clinically insane.
The only way Ginko survives with their current strategy is if enough people get fed up and leave SL for good, forfeiting their rights to the debt Ginko has amassed.
Nobody Fugazi is staying right on top of this story and has a good piece here, outlining the investments that are known to have been made:
http://www.your2ndplace.com/node/354
And drtomaso – I agree. I hope that doesn’t happen because it will mean the loss of a productive, or at least profitable, core of people, which (as I think you pointed out before) can’t be good overall.
[...] Many have said that what Ginko is doing is illegal and most certainly fraud, and it certainly appears that way to me, taking one persons money in good faith and passing it right out the ATM into someone’s hands who are trying to get out of this mess. Benjamin Duranske of Virtually Blind.com has a huge post about the Ginko Financials troubles here, Commentary: Ginko Wrapup – No AVIX, IPO, or Funds and he says this won’t be over until someone is in jail. If what you were saying was true, then they would close down deposits. What this indicates, to me is two things. 1) at some core level, they actually believe this might magically still work, and 2) they are hoping that as long as they leave it running, they won’t be prosecuted or sued. [...]
Ginko, did something good today and I want to applaud it. I’m not sure what the motivation is, but it’s a drum I’ve been beating and I’m incredibly happy it happened for the people who haven’t heard about this yet.
Posted today in the Ginko forums:
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From: Nicholas Portocarrero
Posted: Wed Aug 08, 2007 2:54 pm
We have stopped deposits to keep people unaware of the situation from depositing money into the system.
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Well done, Nicholas. No joke. That is *exactly* the right next step. Now you need to distribute the funds as fairly as possible, which means based on deposit amount pro rata, not based on who was in the queue first.
Update: Endgame
A highly placed source within Ginko has told me that all of Ginko Financial’s functionality will be going offline shortly.
My source says that “Nicholas has made the final call, and is converting everybody to GPBs.”
Bet you wonder what GPBs are. I did. I found out here, part of Nobody Fugazi’s excellent ongoing coverage.
[Editor's Note: This was submitted as a comment by an anonymous reader. I am running it unedited.]
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Dear accountholder,
Ginko Financial was established in December 2004 at a time when Second Life had less than 20,000 residents. As one of the strongest brands in Second Life we have seen the economy grow to many millions of residents and thousands choose Ginko Financial as their preferred financial services provider.
As you probably already know, Ginko Financial has experienced some challenges in these last couple of weeks. Following the ban on gambling in Second Life we began experiencing a wave of withdrawals from Ginko Financial. This led the funds we keep in reserve for day to day use to be exhausted, which evolved into a full blown panic depleting even our last line of cash reserves and resulting in the current situation, with about L$50,000,000 queued up for withdrawal. This situation is unsustainable, as we would be forced to sell off our assets at a
significant discount in order to honor such withdrawals, thus severely harming Ginko Financial’s long term prospects and it’s ability to ultimately honor all of it’s obligations to accountholders.
We had some hope that calm would return to the public and we could resume normal operation, but that does not seem to be likely or even possible anymore. Drastic steps have to be taken in order to protect YOUR wealth while giving an escape valve to anyone who is in panic or simply in need. We are not going to vanish and the investments we made still exist and will not be sold off.
After considerable thought, we have concluded that the only way forward from this is to convert, compulsorily, all customer deposits into a tradeable debt security called Ginko Perpetual Bonds. These bonds, listed on the World Stock Exchange (www.wselive.com), will allow Ginko Financial to recover from recent events by removing all pressure from our cash reserves while providing accountholders with a way to cash out on an open market.
All accountholders will have an account automatically created on the World Stock Exchange (www.wselive.com). Customers will receive one bond with a face value of L$1 for every L$1 they have deposited in Ginko Financial. Each Ginko Perpetual Bond will yield L$0.03 or 3% of face value per quarter (every three months). Ginko Financial will be actively purchasing these bonds in order to help keep prices at as high a level as possible.
Ginko Financial will bounce back from this and if you stick with us, you wll not lose anything. If you must sell the bonds, then you must sell, but I advise against accepting low prices.
Regards,
Nicholas Portocarrero / Andre Sanchez
Ben, you’re gullible. Ginko is preparing to cut and run. Don’t applaud his actions until people are actually repaid.
Hey Common Sense – Maybe, maybe not. The post above was before they shut down the web site yesterday and forcibly cashed everyone out into essentially valueless bonds, so in a sense, you’re right. But I still think winding things up and closing down deposits was good. Well, not good, but you know what I mean. Better, anyway, than continuing to take money from unsuspecting people who hadn’t heard yet.
Great breakdown on what you own now, if you’ve been converted to Ginko Perpetual Bonds:
http://www.your2ndplace.com/node/368
Ben-
I remember talking about “conversion” in con law…
Nic has essentially converted balances owned by others into securatized loans which must be sold to redeem their value. Oh but look who makes a profit off the transaction costs from those sales…. none other than Mr Ginko himself.
Let me make one final point- ok, two.
We’ve been arguing whether or not Ginko was a Ponzi scheme or other fraud. I think it was, but unintentionally so. Its a debate as to whether or not Ginko has always been a fraud, and we’ll never really know for sure.
At the point that depositors money was going out to withdraw-ers, and not to profitable investment, Ginko became, de facto if not de jure, a ponzi scheme.
Now, to cease the ongoing fraud, Ginko has perpetrated yet another, possibly more profitable for Nic, fraud of a different stripe. Hes written off his debts by converting you all to GPB’s, and will make oodles as you try to sell them off through the one and only exchange authorized to trade them, which he just happens to own the largest stake of.
Further, if you happened to previously own GPBs, and your split was just 100:1, you just got raped.
Think about it this way. You owned X shares of GPB, of which there was a total outlying shares Y (X
My comment was cut:
You owned x bonds out of a total pool of size y. Then they split: 100:1. That means you owned 100x out of 100y. Now, they converted all of Ginko’s debt: you now own 100x of 100y+195,000,000.
Further, if they can do this now, what is to stop them from just issuing more bonds whenever they want? They dont have to prove that there are any assets underlying the bonds.
On second thought, it looks (I hate to say this but will anyway) exactly like a Ponzi scheme. I guess now you can sell your stake to another victim though.
Am I getting this right: WSE is charging fees on transactions to unload the nearly valueless bonds, and Nicholas gets to keep about 1/3 of those fees by virtue of owning 1/3 of the WSE?
If that’s right, the point where this isn’t just a reprehensible ongoing scam is well and totally in the rearview mirror.
Confirmed- 3% transaction costs.
So basically, 1% on average goes back to Mr Nic/Andre personally.
Hahahaha… the transaction costs are equivalent to ONE FULL QUARTER of the interest paid by the bonds themselves.
Strike that- the interest will be higher, as its on the face value. You will not be able to trade these things at face value. That of course assumes the interest is real, and not just another fictional value like the interest on the original ginko accounts was.
I’m also hearing reports that the setup process for a WSE account is not automated, so a certain percentage of the accounts will simply disappear.
Update – Portocarrero, Live
[17:45] Nicholas Portocarrero: In fact, even if I HAD taken the money to buy a sports car, which I did NOT do, there was no fraud.
It’s Bob Perry’s story, and it’s got a lot of interesting stuff in it. The biggest thing that jumps out to me is that the tone here is very different.
http://www.your2ndplace.com/node/384
A reader sent me the full transcript, and it’s even angrier than some of the stuff Bob quoted. Angrier both in terms of people taking it to him, and in terms of him firing back.
At the end, Portocarrero just bolts. The reader who sent it to me suggested it might be the guy’s last words in Second Life, and it’s a plausible interpretation. I think he’ll be back — he’s got too much money tied up in his rotten little deal with the GPBs on WSE not to hang around and try to buy himself out of debt at pennies on the dollar. But there’s always hope.
[...] With total lack of transparency all that was known about the head of Ginko was that his Second Life name was Nicholas Portocarrero. That was it, until recently where he stated that his real name is Andre Sanchez and was living in Sao Paulo, Brazil. [...]
Could you tell me If you know the answere or even if there is an answere to this question.
Is it legal for a CEO of a virtual Company in Second life to take and convert lindens from funds aquired from investors from thier IPO and invest them into a real life business for themselves?
Not sure but pretty sure this plan was not disclosed during the IPO to the investors. But if i had been an investor which I am not because I saw to many of these scams in SL so i stay away from investing in any of these games.
It may be unethical but is it legal to do this? Take funds from an IPO …money people invested in a virtual company and then find out the CEO took out 20K USD to invest in a real business. Which to most Second Life residents who did will most likely find it almost virtually impossible to track the financial state of the real life company.
Im appauled but not surprised at this. Not the first to do this so we all know. But its still going on. $20,000 USD’s!! its terrible how much money is being taken out of these virtual worlds. I know the other scams have been more but this is probably just the tip of this one as to how much money is going to be taken.
I just want to know is it legal for them to have done this.
thank you
One item of note here..
Re-read this whole thread, then turn in CNN and watch the whole thing occuring in real life..
The professionals were/are no better than the amateurs, the difference is there is a taxpayer able to swallow massive losses and protect the investors.
SL finance and its similarity to RL is what attracted me to SL in the first place.. From the gambling ban to the bank failures to the housing crash.. its all been a wonderful minature version of peoples reactions in real life..
SL for me is far more than a game, its a study of human nature in a virtual form.. Want to know how people will react in the real world, study their reactions in SL..
wonderful stuff..
I don’t disagree at all Phillip.
Following on from the collapse of Northern Rock in the UK and the insolvency of nearly all UK banks (with the exception of HSBC, Standard Chartered, and possibly Barclays) it was a foretaste of the future
For future readers of this thread (if any) never invest serious real life money in an online virtual bank within a virtual world. As I remember back in 2006/7 the Linden itself was convertable into US dollars at around 270 to 1, therefore the person about with 400k potentially lost $1400 odd
As for SL itself I really wondered about it, thinking what it the future of the so called Web2 ………nah don’t think so…… Facebook, Myspace, and Twitter etc are much better at Web2, and for entertainment look at the really big virtual worlds of Azeroth (World of Warcraft) and similar that quite comfortably support role players, which after all was what Second Life itself was all about
Just a personal view – but a look back into history for me nevertheless