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Two weeks ago, when I started paying close attention to Ginko (full coverage here), a Second Life blogger (who I won’t name) emailed me this:

Ultimately, all do-gooders like yourself have to ask yourself what can be done *when Linden Lab itself will do nothing.*

That sounded like a challenge, and one that was worth taking up. And the answer to that question, it turns out, is “quite a bit.” Ginko is no more.

Ginko Web Site ClosedI’m certainly neither so stupid nor so proud as to think that the end of Ginko is my doing, but it is the doing of thousands of virtual world citizens who dragged the issue right out in front of everyone and refused to let it go, and I am proud that I was one of them. It’s dozens of posters in the official forums. It’s a few brave depositors asking hard questions on Ginko’s boards and getting pummeled for it. It’s hundreds of customers at Ginko ATMs who wouldn’t stop insisting on answers. It’s Ginko’s volunteers, who often provided information honestly and without pretense even when management wouldn’t. And it’s the persistent comment posters on every site who wouldn’t let the apologists, the pretenders, and the shills win.

In short, it’s community action at its very finest. And I’m glad I’ve been part of it.

I am lawyer who writes on virtual worlds. I could be practicing law, but instead, I spend several hours, every day, logged in to virtual worlds (Second Life and others). It’s not altruistic; I eventually expect to make a living dealing with legal issues related to virtual worlds. But I’ve realized something important covering this issue: I’m as much a part of this community as the guy who runs the apartment complex, the girl who works at the dance club, and the scripter who sells poseballs on the corner by my office. I’m a lawyer, both in the real world and in the virtual world, and this kind of analysis and reporting is what I can offer. This is community action — I live here, I work here, and some of the people hurt here are my friends.

What finally did it? What finally killed Ginko after twenty-nine months of speculation? It would be the height of hubris to think that posts here and other places actually did it, but it would also be silly to deny that the professional, non-ranting, non-tabloid part of the virtual world blogosphere has helped bring the important issues to light. We’ve certainly attracted a lot of mainstream press attention, and that was the final nail in Ginko’s coffin today.

But what really opened depositors’ eyes? What caused the internal gears at Ginko to start turning a different direction? Talking to people. One to one. Day after day. We weren’t a few writers, we were hundreds of people ranging from newbies to three and four year residents, from bilingual users translating questions into their own language for fellow depositors with little English, to economics professors at major universities talking about issues that were over my head. We covered every segment of the Second Life populace. Some knew what was happening early, some figured it out later on, but all of us asked hard questions at the ATMs, pushed the hard issues to the front of the public’s attention, and didn’t accept lies — even well intentioned ones — as truths.

Inspire Space ParkSo wrapping this up, I’ve presented two images. One (above) is the Ginko’s website right now, telling folks that it’s over (they say they’ll be back, but nobody can seriously believe that at this point). The other (left) is a truly fantastic build that I just visited with incredible planetscapes, a great soundtrack, and some really beautiful effects. Nobody Fugzai, who has been tracking down the details of the financial side of this relentlessly, pointed me to it as a nice place to go to not think about “work.” (SLURL here.)

If you’ve been financially or emotionally crushed by the fraud represented by the first image above, please, visit what is represented by the second. Virtual worlds are better than the garbage we’ve been hauling out to the curb the last few days. They are better than fraudulent banks, better than petty commentators grinding axes on blogs, and yes, they’re well better than lawyers like me talking about the nuts and bolts of virtual law.

I’m part of this — a tiny part of this — but I’m proud of my part. Visit the great build above. Have some fun. Let’s move on.

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45 Responses to “Commentary: Second Life Community and Ginko”

  1. on 09 Aug 2007 at 2:27 amNobody Fugazi

    This is a good post. It is unfortunate that the sands on this shifted the way that they did… because there are other cards that will likely fall.

    And after that’s done, people will be smarter… maybe even the people running things, too.

    For now, I think everyone should breathe.

  2. on 09 Aug 2007 at 6:42 amAshcroft Burhham

    Dear me, does that mean that I won’t get the L$1 that I deposited to test the queue length back? It looks like it’s a month of bread and water for me.

    This whole affair demonstrates two important things simultaneously: (1) there is serious interest in virtual world-specific financial institutions; and (2) there is also great potential for abuse of such things. Those two things together mean that, if consumers of in-world financial services become more critical (without becoming cynical), and if effective structures of regulation are developed, there is great potential for in-world financial services, the emergence of which would potentially be of great benefit to the in-world economy.

    Ultimately, in order to move to the next level, and succeed, SecondLife’s economy needs to embrace the services sector. As is demonstrated by Ginko’s rise and fall, services need effective regulation (at least, enforceable contracts) in order to be stable and successful in the long term; who, after all, would put money into a bank in the Wild West, where there are more bank robbers than bankers?

  3. on 09 Aug 2007 at 7:59 amRasta Bourgoin

    To bad.. Ginko is smart as hell… told the clients they would get a bond for 1L$ when the price of it on the Exchange told us it was worth prox. 16L$…. I think Ginko bought there own bonds (with clients money(?)) for 1L$, waited, now sold the shit for the 16L$ it was worth, don’t pay the clients, but give them 1 bond for 1L$, while it is worth 0.16L$ now, so stealing from us twice in one movement!
    Now every client can wait until the air clears up over Ginko, or sell with GREAT loss…. man oh man… I hope Micheal is proud on his actions… by the way, mister Lawyerman: can’t we ALL bond and draw this fuckers ass to court for theft? Would be a GREAT thing to do! 2 Things can be solved in one court… 1: Is Ginko fraud and should they pay us, and 2: is the Linden $ ‘play money’ as stated by Linden, or is it more than that and is Linden’s TOS incomplete at that point? ;-)
    Just wondering…. what would happen to SL / Linden if the Linden$ IS worth more then nothing as THEY want us to believe… JUDGE! JUUUUDGE!!!

  4. on 09 Aug 2007 at 8:23 amBenjamin Duranske

    Rasta – there’s a really interesting question there — can’t we all sue this guy? That’s an interesting thought. There’s a lawsuit right now regarding the game World of Warcraft where a bunch of players in a class action suit are suing a gold farming company for damaging the economy of their world. Not much has happened yet in the case, but it’s out there. The problem here is that it’s pretty hard (though not impossible) to sue someone in a foreign country. And it’s even harder to get their assets if you win. So in this case, if you’re not in Brazil, it would be an uphill battle to get to Sanchez’ assets, and if you’re talking about the guy who registered the domains, he’d certainly be easier to sue (though according to the “Official Ginko Blog” he has moved since the domains were registered) but I’m not sure how much he really ended up with in the end. I wouldn’t be that surprised if somebody brought a suit here, but I’d not put the odds much higher than 50/50.

    Your second question (re: the value of Lindens) is important too. I’m working on a piece about that right now, actually, so check back in. I plan to have it up in a day or so.

  5. on 09 Aug 2007 at 2:57 pmBenjamin Duranske

    There’s a good post here that’s mostly on the bonds people have been forced into, but it also makes a really fair point about this post. I’m happy about the good that was done in the long run here, but it is really important to remember that a lot of people have lost a lot of money.

    You’re pissed, and you have every right to be. It’s definitely not as easy to let it go as I’m suggesting. If you got hurt here, I’m truly sorry for you. One thing that I can tell you having dug into a bunch of real life scams covering this: a lot of really smart people have lost money in situations like this before, many in far less sophisticated setups than played out here. Hell, I had been thinking of sticking some of my money in it — and I was 99% sure I knew what it was six months ago. I’d be pissed too.

    Anyway, if you lost money, shoot me a SLURL to your business or rental property or whatever, and I’ll head over there and see if I need some stuff for my office, for my AV. And if you want to talk to a lawyer, I can help you find someone who handles this kind of thing too.

  6. on 09 Aug 2007 at 4:03 pmNobody Fugazi

    I wasn’t trying to degrade this post in any way, btw – you did a great post – it’s just that people who have lost over $9,000 US at this point have been contacting me and are reasonably upset.

    There’s no way to defuse that anger, but maybe there is a way for people to harness it to effect change such that it doesn’t happen again.

  7. on 09 Aug 2007 at 4:12 pmBenjamin Duranske

    I understand completely. I figure it’s not much, but I’ll take the ten bucks [$20 or $30 now, actually, it keeps growing] or so I made on ads while these stories were generating so much interest and spend it at stores owned by people who got hit. Like I said, it’s not much — about 2500 [L$7500] Linden I guess — but it’s something, anyway.

  8. on 09 Aug 2007 at 4:35 pmOrdinal Malaprop

    I commented on an earlier post, but on this I would like to say that, if any lessons are to be learnt, it would be that the SL “financial” and “economic” blogs and commentators need to actually pay attention now. No more vague pretence that high-yield investment scams are anything other than that, simply because the owner puts on a nice suit (L$200) and “talks the talk”. This is not consequence-free roleplaying; it never has been, but this has really proved that it is not.

  9. on 09 Aug 2007 at 4:42 pmdrtomaso


    Good job on all this. You were a big part of getting the word out, and you did it in the face of a huge amount of crud coming from the ginko fan club: (warning: the strawman cometh)

    (a) Virtual Worlds are different! 100% yoy interest is perfectly reasonable!
    (b) People with “knowledge” about matters in real life shouldnt be allowed to comment on issues in second life, because “Virtual Worlds are different!”
    (c) This isnt a Ponzi scheme because its been going on for 3 or 2.5 or 2 years, and even though Ponzi schemes have lasted, for in some cases, 14 years in real life, “Virtual Worlds are different!”
    (d) People who point out fraud in second life are just busy-bodies who dont understand that virtual worlds are different!

    Anyway… good job. Thanks for helping to make sure second life wont be the medium for first life fraud.

  10. on 09 Aug 2007 at 8:14 pmCyn Vandeverre

    “So in this case, if you’re not in Brazil, it would be an uphill battle to get to Sanchez’ assets”

    I surely have missed portions of the whole story about Ginko, for which I apologize if this is a foolish question — has there been confirmation of the RL country of residence of the Ginko staff?

  11. on 09 Aug 2007 at 8:18 pmBenjamin Duranske

    Yes, it was confirmed (though there’s still some speculation, I believe this is accurate based on reports from multiple sources) at the press conference where Ginko tried to buy a stock exchange. I know, it gets odder and odder the more you hear, right? Anyway, here’s the relevant passage:


    Nicholas Portocarrero: Ginko Financial will become much more open about everything
    Nicholas Portocarrero: including my identity
    Benjamin Noble: How about it, Nicholas. Who are you?
    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.
    Nicholas Portocarrero: My real life name is Andre Sanchez
    Maelstrom Baphomet: A long time
    Maelstrom Baphomet: grah
    Benjamin Noble: Where are you located, Nicholas?
    Nicholas Portocarrero: Brazil, specificaly, the city of Sao Paulo.


    Here’s that story:

    And here’s a link to all the coverage at VB:

  12. on 10 Aug 2007 at 12:02 amLillie Yifu

    I am not an economist. But I have the following observations.

    LL is charging more and more for “virtual land” and fees. In the computer world this is the reverse of the norm. The computer I just bought is much faster and costs less than the computer my mother bought last year.

    The unemployment rate must be astronomical, given what camping rates are.

    The interest rates across SL are very, very high. It is almost as if everyone in SL were borrowing money from a credit card and speculating.

    I seem to recall that high unemployment, high inflation and high interest rates equal an economy in trouble. Correct me if I am wrong about this.

    Ginko’s collapse is not an example of one bad operator going under in a healthy or neutral economy, but of one high risk operator going under in an economy were many people are hanging on by the skin of their teeth. I hear this from people who own multiple sims and have established businesses, and from people who have small stalls.

    There are too few customers, it is too hard for customers and businesses to find each other, and the flow of new customers has not increased.

    If everyone is betting on boom, and what we get is anything less than boom, the naturally there are going to be business failures, many of them very high profile.

    Self-congratulations seems to be…. hmmm… out of line, when the root cause for Ginko’s collapse is more likely rooted in the overall economy of Second Life, and the lack of safety systems like FDIC or a central bank, to cut the bleeding before it ripples through the economy and destroy’s good businesses that made bad choices about where to put their savings.

  13. on 10 Aug 2007 at 12:27 amBenjamin Duranske

    I agree with you about most of that, Lillie, except for the last part. Ginko’s collapse was inevitable from the beginning — sooner or later.

    Economic laws don’t quit operating when people login to a virtual world. It’s not *really* a new world. It’s new way to talk to each other, a new way to sell goods and services, and a fantastic tool for all sorts of purposes, most of which nobody’s even thought of yet, but it’s not really a new world that somehow has different economic rules. Interest is still interest, deposits are deposits, and fraud is still fraud.

    You get this, I know, but I want to say it anyway. Paying people 40-100% a year in interest means you have to *make* 40-100% a year just to break even (and more like 60-120% if you’re also pocketing 2-4k USD per month like these guys said they were). That’s true whether you’re taking the money in white envelopes mailed to your office, by wire transfer to your big brick bank, or in a fiat currency in a virtual world. And it’s illegal however you get the money.
    And let’s be honest here, no matter how much talent he might have thought he had — Andre Sanchez didn’t really come up with a magic way to make 60-120% a year that no fund manager in the real world has ever stumbled on to. If it was that easy, Morgan Stanley would close up its shop in New York and do nothing but Second Life investments.

    So the congratulations? Well, they’re directed outward mostly. I’m definitely proud to have been part of the coverage, but at bottom, I’m just a guy writing a law blog who happened to be the first person to find and run the story when they’d stopped allowing withdrawals back in late July. Reuters picked it up, and it snowballed. So I kept investigating and writing. But I do think they’re in order, for everybody who pushed this issue. Two days ago, people were depositing money in Ginko ATMs and those people had absolutely no chance of seeing it again. That isn’t happening any more, and I’m glad about that.

    These guys aren’t worth defending at this point. They’re even trying to make money on the losses, charging people a fee to sell their nearly valueless bonds on the stock exchange they partly own. That’s pretty disgusting. I’ll call it that, and sleep okay saying so.

    There aren’t many issues that bother me this much. I’ve run this blog for six months without being in the middle of a controversy. But this is rotten, and I’m happy I said so.

    I’m already back to covering the more boring law stuff (though I did get to write about virtual escorts today) and that’s good too. Boring law stuff is really what I like covering. But this landed in my lap, and I covered it. I’m glad I did.

  14. [...] It was obvious to everyone that if such a system was at the heart of Gingko, then like all ponzi schemes it would eventually fall apart once the rate at which new investors were attracted began to be outstripped by the needs of the current investors. Although the WSE fraud may have accelerated the end, I do not agree with Benjamin Duranske at Virtually Blind that questions asked on blogs brought about the downfall of Gingko. I’m not sure I agree.  Questions have been asked from the beginning.  Asking questions more loudly when ATMs fail to pay out and daily withdrawal limits are suddenly instituted is hardly the same thing, especially given the negative publicity which Gingko has attracted since it opened. Gingko was brought to its downfall because ponzi systems have to fail eventually. The only question was when. [...]

  15. on 10 Aug 2007 at 1:53 amNobody Fugazi

    @ Lillie: ‘LL is charging more and more for “virtual land” and fees. In the computer world this is the reverse of the norm. The computer I just bought is much faster and costs less than the computer my mother bought last year.’

    Yes… and no. Moore’s Law is a big factor. Reference:

    Hold on a second, you’re right – the same computer in 24 months should be cheaper, but new systems are at a pretty consistent price. Here’s the Linden Lab problem. If each simulator is a server (and on mainland, it’s 4 simulators per server), then they have this expanding network of computers which they have to maintain and upgrade. An example to walk you through:

    You start with 10 computers. In 6 months, you add 20 more – new, faster than the old ones. In another 6 months, you add 40 more that are newer and faster. In another 6 months, you add 80 more. In another 6 months, you add 80 more.

    So we’ve had 1 evolution of Moore’s Law (24 months) – and the computers originally started with are, for all intents and purposes, far behind. You now have a total of 230 computers, with only 80 of them new – 10 you probably should upgrade now, and 140 you will have to upgrade Plus now you have all those pesky routers, and an increased electricity cost, bandwidth cost… and nevermind the software cost!

    So contrary to what you think – prices inching up are natural, especially given the rapid growth that SecondLife has been seeing. I’m kind of tired and may not have made the point as well as I would normally… I apologize.

    Now when you map Moore’s Law to land valuation, you do see where one of the problems of ‘virtual land’ is. Virtula land depreciates, it doesn’t appreciate. Shh.

  16. on 10 Aug 2007 at 4:21 amCyn Vandeverre

    Benjamin, thanks for the relevant sections. I had read those, as it happens. I was thinking of third-party corroboration of some kind.

    If that declaration of Mr. Sanchez’s is all we have to go on, I am not so trusting. If I were under extreme scrutiny for a potentially dodgy financial disaster, I might well consider naming some foreign country as my homeland, because it would be more difficult to bring me to justice (or to clear me, for that matter.)

  17. on 10 Aug 2007 at 8:30 amBenjamin Duranske

    Hi Cyn – I have some limited confirmation (though the source wishes to remain anonymous). Someone who plausibly claims to have known ‘Nicholas’ since before the formation of Ginko says that name and location has always been what he or she was told, before this turned into a disaster. That doesn’t make it certain, of course, but it lends some credence to it.

  18. on 10 Aug 2007 at 12:58 pmCyn Vandeverre

    Thanks, Benjamin, that does give another data point, if only that the story has been consistent since before Ginko.

    Thank you for your reporting; I’ve been fascinated to watch it unfold.

  19. on 10 Aug 2007 at 10:33 pmLillie Yifu

    “Economic laws don’t quit operating when people login to a virtual world.”

    I agree absolutely. I also agree that the collapse of Ginko and other high risk operators was inevitable, because the interest rates they charge mean either they are taking huge risks, ponzi scheme or not, or they are high enough to choke the economy. Either way, sooner or later the growth of SL would have flattened, though I think it has happened earlier than people expect.

    “So contrary to what you think – prices inching up are natural, especially given the rapid growth that SecondLife has been seeing.”

    Sorry, I don’t buy this explanation. Growth in SL should mean that there is more revenue coming in, and therefore prices should, at worst, remain flat. Instead, they have been ramping up considerably. From 200/USD a month for tier for an island to 300/USD.

    If prices are going up, it means that either the SL architecture is such that it doesn’t scale, and I believe that, or LL has higher and higher overhead to deliver less and less service, I believe that too.

    The root cause of the problem here is that LL has been allowing more and more zombie/bot residents to pump up traffic numbers, this burns more and more CPU in an architecture that wastes a great deal of it.

    After all, domain names have gone down in price, web space has gone down in price, bandwidth has gone down in price, and these are all things where the servers need to be replaced constantly too.

    It is the model of renting “sims” that is the problem, as more and more unused power piles up, that means that more and more has to be charged to cover waste that is the result of bad architectural decisions which made “selling virtual land” easier.

  20. on 10 Aug 2007 at 10:40 pmLillie Yifu

    “Two days ago, people were depositing money in Ginko ATMs and those people had absolutely no chance of seeing it again.”

    I am a firm believer in good government and regulation. It seems strange to me that gambling is banned, while financial activities which cannot be legal in any sense of the word, are allowed.

    If I were in charge of LL, I would ban the use of “bank”, “stock exchange” or any other implication of financial instrument, unless chartered by rl authorities, and that information was available to residents.

    I’m also shocked that IM’s aren’t maintained. According to my stock broker friends and clients, they have to maintain phone calls, chat logs, instant messages or anything where financial information or advice was communicated. This does not seem to me to be unreasonable.

    I know there is a great deal of anti-lawyer sentiment out there, and a great deal of anti-regulatory sentiment. I hope people reconsider in the light of these events, because the bonds that Ginko has offered I don’t think would have been allowed by any bank regulators here in the US.

  21. on 11 Aug 2007 at 12:49 pmLem Skall

    Ginko was a mistake and I believe the mistake was not dishonesty though but the lack of transparency.

    I think that dishonesty was never proven and it may never be proven. And until is is proven it is unfair to make accusations of dishonesty. Ginko was a ponzi scheme ONLY if NONE of the money deposited was invested and ALL of the interest paid was ONLY from new deposits. Or at least if a very substantial part of the fund was structured that way. Otherwise, even in investment funds or in banks, the liquid cash can be either from dissolving investments or from new deposits.

    But Ginko had no transparency. And that is foolish and bad business. And it is its lack of transparency and its mismanagement in general that ultimately killed Ginko.

    A lot has been said about regulating finances in SL and about trust. And a lot has been said about building a new economy based on trust and without the RL regulation. I agree that we should try to achieve that. So we should not rush yet into RL regulation and instead we should create a system based on trust.

    But trust should not be blind. Blind trust is foolish and building the SL economy on such a foundation is foolish. That is where Nicholas was wrong and Ginko was a mistake. Even without regulation there should have been transparency. Instead, Nicholas expected blind trust. And everyone who deposited money with Ginko granted Nicholas blind trust. Everyone WANTED to trust, to believe, everyone was dreaming, dreaming of building an economy full of trust. Everyone fooled themselves.

    Accusations of dishonesty were unfair. But people like Anshe Chung, Reuters, The Journal of the Business Law Society and Benjamin Duranske long ago demanded transparency more than anything else. And they were right.

    Call it regulation or call it whatever you want, but transparency will have to be enforced. Robert Bloomfield’s initiative is a good start.

  22. on 11 Aug 2007 at 2:03 pmBenjamin Duranske

    Lem is right – the very best way to keep outside regulation away from Second Life is for citizens to demand transparency and not let things like this get to the point that this did.

    It is problems like Ginko’s that invite the regulation and formal investigations that everyone involved here would rather see kept to a minimum.  If consumers would just start demanding transparency, the metaverse could be much less regulated than it looks like it’s eventually going to be as of right now.  I’d love to see that happen myself.  Lawyer or not, I’m not a fan of big government, as folks who know me well can attest.

  23. on 13 Aug 2007 at 4:29 pmdrtomaso

    I will take issue with that. Dissolving Ginko (and now GCS) and replacing them with securitized, asset-less debt in the form of GPBs that can only be traded on the exchange that Mr Ginko happens to be 1/3 owner of and makes profits on transaction fees, is, here it comes, “dishonest.”

    Taking your money in deposit, never once showing a profit, all while taking a salary that is, on estimate, 8.3% – 16.6% of the funds on balance is dishonest.

    The bar for labels of “dishonest” and “unethical” is much lower than that of ‘illegal’. What Ginko did with their “bank” was patently dishonest- because it was never by definition a “bank”- but it profited from people thinking it was.

  24. on 13 Aug 2007 at 4:42 pmBenjamin Duranske

    drtomaso – you’re replying to Lem @21 above, I assume? I’d add to your point this: the people saying “Ginko didn’t say it was a bank” ignore the fact that they called what you got a “savings account” and also that Nicholas said it was a bank all along (e.g. from the interview here, “VB: Can you explain a little more? What was your goal in starting Ginko? NP: Well, the goal was to create a bank.”)

  25. on 13 Aug 2007 at 4:45 pmdrtomaso

    The free market has a solution for Second life. What second life needs (and in part is getting) is a ratings agency.

    In this case, a bank pays the agency to review its accounting. It then publishes to the public, for free, both its standards, and the ratings it has assigned to its client banks. Maybe it can detail but not rate banks that dont pay, or something.

    The more people who find the service useful; the more people that bank only with those that get high ratings from the agency, the more incentives the bank has to pay for auditing and conform to published accepted standards.

    My rating algorithm would be simple. Heres an example for a “bank” called “ginko”: Starts with AAA. Hmm…anonymous CEO refuses to state where he invested 95% of the funds and keeps less than 5% on reserve, all while promising 100% yoy interest and taking a 16% salary! Automatic F- Enron is a better buy- at least they have some documents and you know who the guy at the top is and can sue him if you need to.

  26. on 13 Aug 2007 at 5:36 pmLem Skall

    drtomaso and Benjamin, I would agree with “unfair”, “irresponsible” and “stupid”, among others. I agree especially that it was plain WRONG. But “dishonest” and “unethical” are too close to “illegal” for my taste. I want to give the benefit of the doubt to everyone and I will assume that Nicholas was using words too loosely, which was stupid but was not necessarily a deliberate deceit.

    [As a side note, if we have to blame anyone, then we should also blame the community that so blindly fell into the naive mistake of supporting Ginko in order to build the "new economy". And, just think of it, some people still argue that, given a chance, Ginko could have grown into something positive. If we want an economy of dreams, then blind trust and spending a lot of money will do. If we want a sustainable, profitable economy, then hard facts will be needed.]

    The ratings system is something that will emerge for sure, one way or another. But a central ratings agency is something that will have a hard time getting accepted in SL. Even multiple rating services are going to be difficult because they will require in turn an agency to monitor them.

  27. on 13 Aug 2007 at 6:09 pmdrtomaso


    I agree in part- Quis custodiet ipsos custodes?

    In fact this is something we are seeing with Moody’s and Fitch (RL ratings agencies) who seem to have been caught up in the credit blow up. Turns out some of the garbage that blew up had AAA ratings from these guys, largely because it appears they were paid for better ratings.

    That said, they will get their just deserts the same way an SL ratings agency would- one good scandal and no one uses them. Banks stop paying to be audited, cause no one trusts the audits.

    In the same way, having a Moody’s data feed will be much less important to all those quant shops out there, cause in the end, what does a AAA rating mean given their recent performance?

    One ratings agency is bad- many is better. Competition is always better ;)

  28. on 13 Aug 2007 at 6:15 pmdrtomaso

    By the way….the Ginko mess has hit the real life financial blogosphere. It made today’s “Five Things…” by Kevin Depew at Minyanville.

    So real life financial professionals had a big ole chuckle at our expense today. I’ll be checking Trader Monthly to see if it shows up there sandwiched between the ads for Learjet time shares and Dubai condos.

  29. [...] Velen hadden hun Linden dollars kennelijk uitstaan om ermee te gaan spelen. Nadat dit met het aanhalen van spelregels onmogelijk was gemaakt binnen Second Life, begonnen bankklanten hun tegoeden op te vragen. Maar het failliet was al lang voorspeld door bijvoorbeeld een ‘Second Life-jurist’ die nu zijn gelijk haalt. Volgens hem is het bankroet een succes van de community van kritische volgers van Ginko, vooral bloggers die uiteindelijk ook gehoor vonden in de pers. [...]

  30. on 14 Aug 2007 at 3:03 amBushcat

    I suppose it’s a coincidence, but “we are/are not a bank” Ginko’s name means “bank” in Japanese.

  31. on 14 Aug 2007 at 4:55 pmKryss Wanweird

    Have you been following the trade of these GPB? Because there is strange some stuff going on there. I happened to run into Nicholas recentely @WSE. There was this enraged crowd coornering him, I felt sorry for him, and IMed him *in portugese* (I am also Brazilian), showing sympathy and telling him that I was there to buy GBPs. No response. I found that strange, since, after all, he should be willing to sell those bonds and to please customers/investors. Also, I was wondering where the hell is the money from Ginko. Because if Nicholas in brazilian, as he states, it would be very hard to transfer this money into the country. And very likely involve some illegal operation. There is no way he could do that unless he has an account on a bank in the USA, like Citibank, and transfer those funds into his brazilian account in the same bank, or, if he wants to avoid high taxation, he could cash this money out and scam it in the country in species. I highly doubt both possibilities, concluding, therefore, that the money is likely to be in the USA, and that Nicholas has a foreign partner, or himself is not brazilian…

  32. on 14 Aug 2007 at 5:08 pmBenjamin Duranske

    Kryss – I saw your comment about that on another site and it really did make me scratch my head.  I’m starting to seriously wonder whether “Sanchez” is a false identity. Have you seen this comment?…fraud/#comment-4988

    I never was certain enough that this guy (Michael Pratte) was a decision-maker to run the information (I’ve been sitting on it for about two weeks), but a reader put it in a comment, and I decided to let it run given the circumstances. It is pretty solid analysis, particularly in light of the registration of that pre-dates Second Life.

    I’m not saying that I’m sold on this, but if “Sanchez” is a false identity, and the whole, “I wanted to be like this Brazillian banker I read a biography about” was made up — and told to Reuters almost a years ago — it is convincing evidence of premeditation.

    I wonder how he’d do in a voice interview in Portuguese?

  33. on 14 Aug 2007 at 5:45 pmDavidLuis Saenz

    Perhaps this has been mentioned, or tried, before, but would it be possible to experiment with a voluntary arbitration group? Maybe starting small, at first, and if it works, going from there. Of course, I realize this would have problems of its own considering there is no real mechanism to enforce decisions, as the system would mostly have to rely upon the good faith of the participants. Then there’s the issue of bias, or perceived bias, on the part of the arbitrator. I realize there would also be issues with evidence. And, with residents from around the world, the group would have to be mindful of the differences between commercial customs and practices of different localities. But I think with some brainstorming and collaboration, something could be developed to help address these issues. Perhaps a start could be creating a transparent system where anyone could view the proceedings and decisions. I don’t think developing mutual goodwill, trust and respect between residents and business could hurt, either.

    I’ve only been using Second Life for about a month now, and I am fascinated by its possibilities and real world implications. Plus, having a J.D. in real life, I couldn’t help but think of this. In terms of my own situation, I would like someday to own my own bit of land. But besides gathering enough for the cost, one thing holding me back is that if I run into a problem during or after the purchase, I really have no recourse, except the mercy of the resident I bought the land from. I think escrow services are also badly needed as well.

    I’d appreciate any comments anyone may have about this idea. If there’s enough interest, I wouldn’t mind using some of the time I have — which is sometimes just spent picking up freebies that end up cluttering my inventory and I eventually have to trash anyway — and contributing my own real world knowledge and experience in developing an arbitration group.

  34. on 14 Aug 2007 at 6:28 pmLem Skall

    DavidLuis, there is already an initiative for arbitration in SL, albeit very new. Check out the eJustice sim.

  35. on 14 Aug 2007 at 9:06 pmKryss Wanweird

    Benjamin, very interesting link. Have you noticed that the domain was registered in Feb 2005? I guess that was when the Ginko “Bank” was born in SL?
    This whole issue is very shady, but I would bet that Nicholas is Michael Pratte, irl. Or, at least, he has to be a long time friend of Michael.
    But, follow the money and you will find the guy, and that kind of money leaves traces behind.
    I don’t believe the information published in WSE. It seems that they are trying to gain time. So nobody sues Ginko hoping to get their money back.
    But, maybe we are mistaken, and Nicholas is just a guy in Brazil, who legally transfered the money from Ginko and invested. In that case, from the perspective of a high tax paying brazilian citizen, I would be eager to help you set up that interview (if Nick agrees). Actually that would be pretty interesting, we could call the brazilian press…

  36. on 15 Aug 2007 at 6:54 pmWheeler Indigo

    SL Marketing Plaza, Business Bureau Isle (133, 181, 36)

    I’m new in SL as of Saturday, 8/11/2007, and while hunting jobs I discovered that an escrow and arbitration service does exist at that location. Apologies for not having it all properly linked, that newness bugs a bit.

    Personally, I want to see arbitration and escrow services flourish as much as anyone. Frankly, I want to work there. I am a paralegal possessing an Associate Degree of Paralegal Study from Kaplan University. And beyond that, I also want to see a ratings or certification service also flourish. Beyond that, we need real companies offering real world things with SL as merely a medium of communication with all manner of transactions banned for such businesses.

    And for those of you asking if laws transcend from FL to SL, yes they do. This is not interpretation, this is fact: LL has nexus in California and USA, this means they are subject to the laws of those jurisdictions, subsequently, so are all users. Nexus is established by substantial business presence and activities within a given jurisdiction.

    Beyond nexus, each user is subject to the laws in their own jurisdiction and potentially subject to the laws in each additional jurisdiction that other users are located in at time of action. Again, fact, not interpretation.

    Frankly, any and all financial activities tht should involve a prospectus should be controlled by a chartered regulatory agency, not simply trust. Yeah, I trust that my meager handful of L$ will be there in the morning, but that’s as far as I’ll go with SL. It is true that regulators are practically incapable of keeping up with virtual worlds, inviting such abuse as what has and will happen. I would even suggest that LL offer a registry that begins a regulatory process, instead of leaving it to user owned (and potentially abused) institutions.

  37. on 16 Aug 2007 at 2:11 pmrandom dude

    I don’t know anything about SL, but I somehow found a link to this page through WIRED (or a link from WIRED, maybe). The whole thing is fascinating. I read the transcript of the press conference, and some of your comments, and I want to say that you guys are still being incredibly naive. The difference between risk in the real world and “risk” in the virtual world is that there is no accountability in the virtual world — the worst you can do is ban him from SL (which I suppose would be the SL analogue to execution, but somehow doesn’t seem quite as terrible a fate)! Was there ever a legally binding contract that would force Nicholas to do what he said he would with the money you gave him? What was stopping him from taking it and buying a car, or a house? Benjamin, when he said he’s from Brazil, you immediately took his word for it — but as has already been pointed out, all you really know is that he *says* he’s from Brazil; he could *actually* be anywhere in the world. Similarly, he has said that he has invested the money in properties in SL and in websites — how do you know this is true? Unless he can show some sort of purchase receipts (which he may have already done — I apologize that I’m not a community insider), the difference between the amount he has received and the amount he has paid out is probably sitting in his bank account. There is no reason to believe anything he says.

  38. on 16 Aug 2007 at 2:25 pmBenjamin Duranske

    I don’t totally buy Brazil. Check the comments to the previous posts on Ginko.

  39. on 16 Aug 2007 at 3:04 pmrandom dude

    I see — I read that post quickly, but my overall point stands — does anyone *really* know what he’s done with the money?

  40. on 16 Aug 2007 at 6:29 pmShava Nerad/Shava Suntzu in SL

    Ben, the Wired article really makes it sound like you favor outside regulatory intervention in SL, for financial vehicles and so on. Is that the case?

    I would really hope this would be an opportunity to educate the public (SL/RL, if you can separate them in the blogs/press) on doing risk assessment for investment, that the FDIC isn’t there for all RL vehicles of investment either, and people should educate themselves on relative risk.

    No one gives interest on money where there is no risk involved. Even your savings account in an insured bank is giving you interest for the privilege of investing your money into riskier investments that will, on average, yield far more to the bank than they will to your account.

    But those who don’t remember bank runs or even the savings & loan bailout are doomed to repeat similar tragedies.

    Shava Suntzu/Shava Nerad IRL

  41. on 16 Aug 2007 at 7:05 pmBenjamin Duranske

    I think regulation is inevitable if there isn’t a strong push for transparency in-world, but I’d rather it was the latter.

  42. on 17 Aug 2007 at 12:18 pmdrtomaso

    #37- What you describe is counter-party risk. In FL, when you are involved in a deal with another person, you always have the risk that they will default (or defraud you). In SL, the counter-party risk is near infinite. You dont know who the person on the other end of the wire is, and there is binding dispute resolution mechanism (read: courts system) in which arguments can be decided. This is why I do not do business in SL (aside from barter). This has been mentioned repeatedly in other threads, the official forums, etc, and I think its well understood by most players.

    (disclaimer: I got involved in sl when I came looking to stat arb their currency markets but found the fees to be drastically out of whack with the volatility. This type of model would not have seen me doing business with another avatar, but with LL/slexchange/etc’s currency markets, thus limiting my counter-party risk).

    #40- I agree that educating people on these issues is hugely important. Part of the reason so many people are hurting from this Ginko fiasco is that they bought the line that Ginko was a “bank”. The believed their accounts to be “savings accounts.” These words have iron clad legal meanings, but also softer colloquial meanings. The soft meaning is that your money is safe.

    There was a huge disconnect between what Ginko’s reality and the public face that Ginko put on. What Ginko was: at best a highly illiquid, high risk investment fund and at worst, a complete Ponzi scheme fraud. What Ginko claimed to be: a “bank” that paid “interest” on deposits made to “savings accounts”. Sure Ginko had disclaimers- their butt was covered- but even the disclaimer was ‘weasel’-y. It pointed out the risks: that they could go belly up, that they might not be able to cover withdrawls because the money is invested. I think this quote from their disclaimer is the chief bit of weaseling:

    “We keep a healthy reserve in pure linden dollars to pay people who wish to take money out of their accounts, so almost all withdrawals are cleared within minutes, most being instantaneous.”

    This turned out to be a complete fiction.

    If Ginko had called themselves a “Hedge Fund” or “Investment Fund” or even just “Fund”, I dont think we would have the problems we have now simply because these institutions have colloquial meanings in first life that are associated with risk. Coincidentally, less people would have deposited funds. Ginko didnt take that tact, and they made a huge profit defrauding their depositors.

  43. on 17 Aug 2007 at 12:38 pmdrtomaso


    I will second your comments. If there is a law suit naming LL, they will shut the banks down to cover their you know what.

    Outside regulation is simply not possible unless it becomes legal fact that L$ have real value. At the moment, its not clear which way the courts lean on this issue. If it does come down they yes, L$ = $, then LL has much bigger problems, namely the IRS. They would probably just do away with the L$ in that case, and that would end SL, effectively.

    One big thing that LL could do is simply take the stance that if you use SL to perpetrate FL fraud, they will do all in their power to make sure the legal authorities have the information they need. That would mean the worst thing that could happen to you isnt a banning, but that your contact info gets turned over to a DA.

    That said, I still think theres things we as SL players can do to regulate ourselves- a better business bureau model if you will. Commercial ratings agencies can form up and charge banks to review their accounting. In part, the sl insurance co, “The Rock” may fill some of this need. But again, there is always that underlying counter party risk. I can invest in a “bank” and insure my deposits with “the Rock”, but there is no guarantee that when the “bank” goes under, “The Rock” wont become “The Gone”.

  44. on 21 Aug 2007 at 2:35 amNobody Fugazi

    Heh. Well, if my barometer is right, there may be another interesting aspect of finance in Second Life brewing. One of these times, Linden Lab won’t escape the hurricane force winds… a lot remains to be seen.

  45. on 20 Oct 2007 at 2:10 amDinger Babcock

    Any news lately on this fiasco? I would like to see some justice regarding the Ginko fraudulant decisions. Is there a lawsuit I can join? Please keep this going if possible. Thanks.

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