Metanomics, the popular in-world speaker series, will feature a panel discussion today at 11:00 AM Second Life time (Pacific) on virtual world banking and the recent Linden Lab banking policy change that effectively ends all unlicensed banking activity in Second Life.

I will be on the panel, along with Jillian Falconi, an Innovation Consultant with Saxo Bank (a real-life Danish bank focusing on foreign exchange trading with a presence in the virtual world), ‘Intlibber Brautigan,’ who runs Ancapistan Capital Exchange, a stock exchange in the virtual world, ‘Travis Ristow’ who runs BCX Bank, an in-world bank that is presumably subject to this policy, and David Talbot, who wrote the article The Fleecing of the Avatars in this month’s edition of MIT’s Technology Review, which some have speculated sparked the timing of the policy, if not the policy itself. As always, Cornell professor Robert Bloomfield will moderate the panel. SLCN will broadcast the event live in-world.

If you won’t be in-world this morning, you can also watch the video when it is added to SLCN’s Metanomics archive, shortly after the conclusion of the event.

[Updated: a video of the panel is now available at SLCN.]

Linden Lab has announced a new policy regarding banking, essentially shutting down dozens of largely insolvent self-styled “banks” in Second Life.

There are open questions regarding the impact on other institutions, and undoubtedly, one or two legitimate operations will be caught in this net. That is undeniably unfortunate, but the vast majority of “banks” in Second Life are nothing more than fraudulent ponzi schemes, and this is positive step that will save a lot of people a lot of unhappiness in the long run. It is a smart move from both a business and legal perspective, and it stands as further evidence that Linden Lab is growing up and focusing on the long-term health of the grid. From the notice:

As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.

Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world “banks” defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized.

Usually, we don’t step in the middle of Resident-to-Resident conduct – letting Residents decide how to act, live, or play in Second Life.

But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.”

My only complaint with this policy is that it has been too long in coming; it is clear and concise, and it undeniably makes the grid a better place. In the long run, policies like this, which acknowledge the obligations facing a company that offers users the chance to “make real money in a virtual world, that’s right, real money” (emphasis in original), will keep Second Life, and the grid in general, healthy and relatively free of regulation.

This month’s issue of California Lawyer features a cover article on virtual law. It’s very accessible — the kind of story you can forward to skeptical colleagues to explain why you need to buy a high-end gaming laptop for work.

The article features great photos of four California attorneys’ avatars. Pictured are: Geri Kahn (SL’s ‘Geri Kuhn’) who practices in San Francisco and recently opened a Second Life office, Kate Fitz (SL’s ‘Cat Galileo’) who brings us the outstanding virtual law resource Second Life Lawspot, Stephen Wu (SL’s ‘Legal Writer’) who practices in the bay area and is currently Secretary of the ABA’s Science & Technology Law Section, and Stephen Davies (SL’s ‘Little Gray’) who founded Second Life’s “Avatar Civil Liberties Union.”

The article kicks off with a description of last October’s Second Life Bar Association meeting, so I’m in there too. Also quoted are my co-chairs on the committee on Virtual Worlds and Multiuser Online Games of the ABA’s Section of Science & Technology Law, Sean Kane and Cristina Burbach, as well as some of the other usual suspects in virtual law.

I haven’t been running clippings much recently, but this one is pretty cool for me. I’ve been getting California Lawyer since law school, as have all of my colleagues from the bay area and classmates from Berkeley. It’s pretty neat to see virtual law featured in this very mainstream publication. Although I’ve (at least for now) relocated to Idaho, I still have close connections to California and expect to devote much of my practice to California clients when I am back at it. The California Lawyer article makes me really miss the bay area.

As long as I’m doing a personal update (and since California Lawyer scooped me on details about my own book) I am also pleased to announce that Virtual Law: The New Legal Landscape of Virtual Worlds is slated for publication in April through the American Bar Association. It will be available exclusively via the ABA for a short time, and will be more widely available (both online and in bookstores) a bit later. I’ll run a link for orders as soon we have one.

A new Second Life-based broadcasting company, “MetaNetwork Media, Inc.” recent announced that it has hired a Second Life-based law firm, “The MetaLegal Firm” as “primary counsel.”

I’ve had this in my in-box for a few days, and I just haven’t been able to figure out what to do with it. On one hand, the core of the announcement is pretty cool: a real life lawyer from Mexico City, Jorge Martinez Silva (as Second Life avatar ‘Deco Straff’) has been hired by a Second Life media company that looks like it has real potential. On the other hand hand, the release highlights a troubling issue that attorneys may want to watch out for when practicing in virtual worlds.

From the press release:

MetaNetwork Media, Inc., (symbol: MNM) announced the hiring of its legal counsel, The MetaLegal Firm, which is the Second Life practice of Deco Straff of the Mexican legal firm Rodriguez Davalos Associados, S.C. of Mexico City. Deco Straaf (Jorge Martinez Silva in real life) will serve as the primary counsel for the Second Life broadcasting company.

“This is an important step for MNM because of our long-term goals as a company, which includes growing our company into real life,” said Cadence Juran, MNM CEO. “Deco and his U.S. colleagues provide us guidance on our incorporation, our IPO and protection of our intellectual property in both SL and RL,” Juran said.

As an initial matter, I want to congratulate Silva for this neat bit of representation. MetaNetwork Media looks like an interesting project, and it is great to see virtual world-based companies starting to seek the help of attorneys with virtual world experience.

Unfortunately, much of the rest of the press release is devoted to other aspects of MetaNetwork Media, Inc.’s business dealings — including the aforementioned “IPO” in Second Life — and that causes some concern.

The sale of securities in Second Life raises the same issues for me that it always does. This particular “stock” trades on the “Second Life Capital Exchange.” This virtual stock exchange, like most others, strongly disclaims any real world implications, and claims, basically, to be “only a game.” However, the stock is available as part of an “Initial Public Offering” at $5L per share (roughly $0.02) and Lindens are readily convertible to real-world cash. As such, there are — as there are with every in-world company purporting to offer securities — serious questions regarding the legality of the offering.

This happens all the time in Second Life, of course; there are dozens, if not hundreds, of virtual world-based companies who have offered or are currently offering stock. Here, however, the press release comes with at least the appearance of approval of Silva’s firm, and that gives me some pause.

VB encourages attorneys who are practicing in this fascinating new area to keep in mind that while independent actions taken by in-world clients will not generally expose you to professional liability or raise ethics concerns, in situations where press releases are involved, it may be a good idea to take steps to avoid being depicted as endorsing legally questionable activity.