SL banks scramble for survival ahead of deadline
By Eric Reuters
SECOND LIFE, Jan 17 (Reuters) - They’re selling out, moving out, and closing out. With less than a week to go before Linden Lab’s ban on unlicensed banking goes into effect, the Second Life financial sector is scrambling to cope.
Last week, Linden Lab announced a ban on “interest or any direct return on an investment” unless banks are licensed by a real-world government. The deadline of Jan. 22 gave banks 14 days to cease operations.
Because Second Life’s banks are unregulated, it’s impossible to know how many there are, or the total amount of deposits. But a survey of major banks shows that most have implemented withdrawal limits and are juggling the demands of nervous depositors who are unsure if they’ll get their money back.
Steve Smith (Second Life: Travis Ristow) of BCX Bank has seen his deposits shrink from L$11.5 million (US$42,600) to L$5 million (US$18,500) in a week. “We have limited daily withdrawals while we reorganize,” Smith said. “Customers can withdraw L$2,000 per day - we can meet all deposits as long as we don’t have to liquidate all assets immediately.”
Second Life has an entrepreneurial class of over 50,000 residents with a positive monthly flow of Second Life’s in-world currrency, pegged to the U.S. dollar. With hefty fees on the official LindeX currency exchange, many merchants maintain large balances of currency. A banking industry emerged to invest Linden dollars on Second Life’s unlicensed stock exchanges or in private ventures, often promising massive returns for investors.
Critics alleged the banks were nothing but Ponzi schemes, a charge harder to ignore in light of recent high-profile bank failures. Ginko Bank went belly-up in August, leaving investors in the lurch to the tune of US$700,000. More recently, Midas Bank collapsed in a complicated investment scheme that left Second Life finance-watchers crying foul.
Attorney Stevan Lieberman (Second Life: Navets Potato) of Greenberg and Lieberman has been retained by irate Midas depositors to investigate possible litigation.
“Linden dollars are not play money,” Lieberman said. “You can exchange them back and forth to PayPal and your bank account.”
A nervous Linden Lab banned banks outright, but some institutions are looking for a way to survive.
BCX’s Smith is investigating moving his operations off the Second Life Grid. He’s eyeing opening branches in Central Grid, a virtual world based on the open-source Second Life mockup OpenSim.
Unlike Linden Lab’s Second Life Grid, Central Grid runs completely autonomously of the San Francisco company. However, Central Grid currently sports a miniscule user base and untested technology.
BCX isn’t the only bank looking to make an end-run around the ban. BNT Financial, run by Mike Lorrey (Second Life: IntLibber Brautigan) insists he can re-work his bank’s terms of service to offer “indirect returns” to depositors of 250% per annum and not violate Linden’s ban. If Linden won’t play ball, like Smith he eyes other grids. “Central Grid is the new world,” Lorrey said.
Others are looking to get out of the game entirely. Tyrian Camilo ran the Second Life Investment Bank, one of the virtual world’s most prominent. He’s courting investors to take the remnants of his bank — and his responsibilities to his depositors — off his hands.
“Basically, my debt to them [depositors] changes owners along with some of our assets.” said Camilo, who declined to release his real name.
One thing the bankers have in common is a sense of bitterness towards Linden Lab for giving a mere two weeks notice. For many, running a bank was the primary draw of Linden’s virtual world.
Steven Bridges (Second Life: Barton Giovinazzo) of Giovinazzo Choice Investments freely admits there were a number of crooked banking operations in Second Life, but says he only invested 35 percent of his depositor’s monies and his customers will get their accounts back in full.
“A huge part of why I started this bank is I had nowhere I could trust to deposit and walk away to just let interest grow,” Bridges said.
“You spend all the time and energy building trust and good relationships, then now what?” Bridges said. “It punished a lot of honest people more interested in providing a service than ripping off SL.”
