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[Editor's Note, August 11, 2007: Virtually Blind has been running extensive follow-up coverage of the collapse of Ginko. You can find it by searching "Ginko" in the sidebar, or following this link. The original article appears below these notes. Ginko has closed its website, and liquidated its debts by forcibly converting all account holders to "Ginko Perpetual Bonds." These bonds are only tradable on a Second Life stock exchange one-third owned by Ginko's former head, and trading them involves paying a fee that goes to him. The bonds currently sell for pennies on the dollar.]

[Editor's Note, August 5, 2007: Based on what I have learned in covering the collapse, I am now completely certain that Ginko is paying its obligations to previous depositors with new depositors' money rather than investing that money. As such, over two years of speculation about whether Ginko is a Ponzi scheme is over -- it undeniably is. Ginko Financial ATMI am typically very cautious with statements like this, but known facts prove that this is what is happening. As such, I recommend that no one make any further deposits Ginko, that victims report the scam to Linden Lab via abuse reports, and that land owners remove Ginko ATMs to protect their tenants unless Ginko voluntarily disables deposits.]

[Editor's Note: On July 27, 2007, Ginko Financial suspended withdrawals, apparently in the wake of Linden Lab's decision to ban casinos. Because of Ginko's near-complete opacity of policy and investments, it is unclear exactly how the casino ban is impacting Ginko. As of 9:00 AM SLT, Ginko's website states that withdrawals are again allowed, although temporarily limited to $L5k ($19 USD) per day per depositor (down from $L300k ($1100 USD)). However, the users I spoke to attempting to withdraw funds today were unable to withdraw even that amount. VB repeats its advice that people thinking of depositing money at Ginko carefully evaluate this company and the risks that they, personally, are willing to take, before depositing.]

[Editor's Note: On June 19, 2007, Ginko Financial raised its interest rate from 0.09% daily to 0.13% daily, which tends to indicate it is, at least for now, financially viable. VB maintains, however, that the bigger-picture criticisms of Ginko remain valid, and suggests that investors should approach any company with near-complete opacity of policy and investments very carefully. Ginko's current interest rate can be found here.]


Originally published, Feb. 23, 2007.

A thoroughly-footnoted February 12, 2007 article in the online edition of Journal of the Business Law Society at the University of Illinois College of Law stops just short of joining virtual land baroness Ailin Graef (‘Anshe Chung’) and others in calling well-known Second Life savings bank “Ginko Financial” a ponzi scheme.

People have been beating this drum since shortly after Ginko’s formation, but a consistently slipping interest rate paired with statements Ginko Financial owner ‘Nicholas Portocarrero’ made in a recent Reuters interview, suggest that the allegations may deserve a fresh look.

A ponzi scheme involves enticing new investors with claims of huge returns, and using their money to pay off earlier investors (rather than paying investors part of the profits from a legitimate business enterprise or investment).

Whether or not you have money on deposit with Ginko Financial, the University of Illinois College of Law article is worth paying attention to because a crash at Ginko, which now claims over L$118m (about US$475,000) in deposits, would likely generate multiple lawsuits targeting both the owners of Ginko Financial and Second Life creator Linden Lab itself. It would also significantly ratchet up pressure for regulatory scrutiny of in-world financial transactions.

Why the concern from the students at the University of Illinois College of Law? To start with, the usual criticisms of Ginko: zero transparency regarding investments, potential underfunding of available withdrawals, and management’s steadfast refusal to remedy either problem.

But there’s a new wrinkle — Ginko Financial’s consistently-dropping interest rate was reduced again on February 1, 2007, and is now significantly less than half the rate Ginko was offering just 16 months ago.

In addition, Ginko Financial’s owner ‘Nicholas Portocarrero’ recently told Reuters that Ginko keeps only around 5% (and “sometimes less”) of its deposited funds available in-world in $L for immediate withdrawal by depositors, and Ginko provides no specific information about where or how the remaining 95% of the funds are held or invested.

VB sought comment from ‘Portocarrero’ in-world and via a form on the Ginko Financial website for this article (no other contact information is available). ‘Portocarrero’ declined, saying he is “not currently available for interviews.” ‘Portocarrero’ has not revealed his real identity.

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The Second Life Herald reported today that in-world attorney ‘Monday Beam’ (pictured) has been hired by a group of disgruntled Second Life citizens who claim that they were summarily evicted from parcels of virtual land they purchased on a private island sim known as “The Tropicana.”

'Monday Beam'Private island sims are privately held and managed. They cost US$1,675 for initial set up and creation and US$295 a month for maintenance. “The Tropicana” island sim is owned by ‘Joshua Sao,’ and is not the better known “Tropicana” island sim.

The SLH reports that the evictions occurred on February 14, and that residents approached Linden Lab but were reminded “that island owners have absolute power in their tiny fiefdoms.”

VB contacted ‘Beam,’ who said that he has had several settlement conversations already with ‘Sao’ and expects “to present him with a final settlement offer today once the class closes.”

‘Beam’ says he “anticipates ‘Mr. Sao’ will pay what is owed to the plaintiffs [including] actual damages, plus consequential damages, and attorney’s fees.”

Currently, there are nine citizens who have raised claims, and ‘Beam’ says that there are “a few more pending today.”

In handling in-world disputes, ‘Beam’ says he “typically operates in three phases: in-world settlement with the defendant first, then Terms of Service abuse reports and written notification to Linden Lab if applicable, and finally real-world litigation, assuming that the financial damages are significant enough.”

‘Beam’ is charging a flat fee for this representation, though he “usually goes contingency on these matters.” ‘Beam’ did not discuss the particular financial arrangement he has with these clients, but says he “typically charges a nominal L$1000 [about US$4.00] retainer for an initial consultation, and an additional L$4000 [about US$15.00] to carry out an in-world claim, per litigant.”

By real-world benchmarks, ‘Beam’ notes that, he is “severely underpaid.” If a case becomes real-life litigation, however, Beam charges his real-life fees — currently US$400 per hour.

In the real world, ‘Beam’ is a solo practitioner. He says that he is “a trial lawyer by trade” who is “licensed to practice in Illinois and U.S. Federal courts.” He generally does not publicize his real-life identity in-world, though he does make full disclosure to clients for a fee of L$30,000 (at current exchange rates, a little over US$110.00).

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Virtually Blind periodically runs “quicklinks” — items that are not long enough for a full story, but are worth a click. Here’s today’s batch:

  • FindLaw has a review of a new essay collection about virtual law. The book is called The State of Play: Law, Games and Virtual WorldsThe State of Play: Law, Games and Virtual Worlds. According to FindLaw’s reviewer, the essays tackle “how emerging digital worlds are influencing, and being influenced by, our non-virtual lives” and the book is “a must read for those with a stake in the future of virtual worlds.” At first glance, the essays look a bit dated, and at least one appears to be freely available on Salon, but I ordered the book, and I’ll eventually review it. Want a copy for your own library? You can get it on Amazon, though at the moment, they only have a handful of copies left in stock.
  • Wonkette gets snarky about virtual worlds and politicians who are setting up virtual campaigns in a piece entitled: “Edwards To Pin Down Crucial Techno-Savvy Shut-In Vote.” Read it, get angry, then admit it: she’s actually right. The Edwards 2008 campaign in Second Life really isn’t going to make a bit of difference. And it is a pretty funny piece, as long as you don’t mind your favorite virtual world being labeled a “massively multiplayer online role-playing dorkfest/pyramid scheme.”
  • Though it’s been around for awhile (and presumably works about as well as drinking Coca-Cola and eating aspirin) Reuters is reporting that there’s a virtual drug you can buy in Second Life that actually messes with your head by Secliminedisplaying “audio and text hypnotic inductions” to stare at while your avatar dances, passes out, throws up, or gets lucky on your behalf. It’s called “Seclimine.” Any readers actually tried this? Are you man, woman, or purple-tiger enough to admit it? Does it work, even a bit? A headache, hint of a seizure, or some dizziness, at least? With narcotics, the general rule is that a substance isn’t prohibited until somebody gets around to saying it is, and possession (though not sale) of fake drugs is generally legal anyway, but I’ll keep the “thanks for the link” for this one on the down-low, you know, from the virtual Po-Po.

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Benjamin Duranske's Second Life Avatar, 'Benjamin Noble'Wherever possible, articles on Virtually Blind identify sources and subjects by real-world names, but many individuals involved in virtual worlds prefer to be identified only as avatars. While there are certainly reasons (both good and bad) for anonymity in virtual worlds, traditional journalistic standards dictate that readers should, at minimum, be able to distinguish virtual-world pseudonyms from real-world names where there could be confusion.

Though virtual worlds have been around for awhile, the problem is far greater now than ever before. Back when most virtual worlds were games with a little social networking thrown in, there wasn’t much chance that “Grimm Wolverblade VII” or “H4xxOr R0xU” would be confused with a real person. But now, avatars in popular virtual worlds like Second Life almost all have names that are not easily distinguished from “real world” names.

I have seen many attempted solutions to this problem, including italicized names, double quotation marks, and most popularly, in-text clarification. All seem either unnecessarily cumbersome, implicitly critical of the decision to remain anonymous, or simply confusing.

VB’s Solution and Proposed Standard: Single Quotation Marks

When an avatar’s name is used on VB, the name will appear in a set of single quotation marks to distinguish it from a real-life name. Pause your cursor over my avatar’s picture (above, left) for an example.

There are several advantages to single quotation marks. While they serve as an appropriately persistent reminder, they do not carry the implied skepticism of double quotation marks, and they avoid possible confusion with titles of books and movies caused by italics. They are also far less burdensome on both writers and readers than constant in-text explication. As an added benefit, they don’t have any significance in HTML (unlike double quotation marks) so they can be used in blog comments and other fields where HTML is sometimes prohibited.

I encourage other writers dealing with virtual worlds and online-only personalities to consider adopting this style. Please email me if you decide to use this style on your site; I’ll compile a list of links to all sites that do.

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