Ginko Financial’s AVIX Buyout Blocked

by Alphaville Herald on 31/07/07 at 10:24 pm

Cash crunch and opaque accounting limits Ginko’s appeal

by Jessica Holyoke

The SL financial market was roiled today by news that the Ginko Financial Group, owned by Nicholas Portocarrero was attempting to buy a controlling interest in AVIX financials, owned by Investor Allen. After previous reports of Ginko’s inability to cover withdrawals from the “bank”, the issues with in-world financial transactions and all the troubles at the World Stock Exchange (WSE), this meeting came as a surprise announcement. It was also shocking because some felt that Ginko had a preferred partner in Hope Capital/WSE, although Ginko Financial will still remain shareholders in WSE.

What happened after the meeting only added to the drama and confusion – AVIX announced that the Ginko Financial Group merger and its IPO is being rolled back. In a terse announcement, Investor Allen stated that “[w]e will no longer look to merge with other institutions without a solid knowledge of their ability to cover their accounts and will never again even glance at exposing our accounts to such a risk.”

Benjamin Duranske, who originally broke the story of Ginko’s liquidity problems, has extensive coverage of the meeting at his Virtually Blind site including an eye-opening transcript of the meeting.

At the meeting, Mr. Portocarreo announced that Ginko planned to purchase AVIX using a combination of non-liquid assets and cash. The purchase would occur after Ginko Financial Group finishes up with their upcoming IPO in order to gather the cash needed to finish purchasing the controlling stake. According to the announcement, if the IPO does not fully raise the $5 million Lindens needed to purchase control of AVIX, then the purchase would not go through.

With the acquisition, AVIX planned to offer more trading locations as well as increasing the ability to offer customer service solutions to their clients. AVIX also looked forward to access to Ginko’s client base while Ginko hoped to create more stability in the SL economy, offer more transparency and add to their liquid assets to help cover customer withdrawals more. AVIX and Ginko will not be combining balances at first, but rather sharing information and technology. AVIX would be controlled by Ginko Financial Group and then Allenvest Investment Capital.

Some residents were enthusiastic about the upcoming merger, but others were sceptical. Benjamin Noble questioned how Ginko operates and how they generate their interest. He also accused Ginko of being a possible ponzi scheme, a claim Investor Allen denied.

In a move to show that Ginko was serious about transparency. Mr. Portocarreo revealed his real life name and location as Andre Sanchez of Sao Paulo, Brazil. While residents clamored for the previous accounting statements that showed how Ginko made its money and paid out its investments, these requests were not honored at the meeting. Others asked was why 4% of the total value of Ginko Financial Group was being offered initially for $5 million dollars if the company itself is worth $125 million with no reason for that appraisal.

It was also revealed that Ginko/AVIX was looking to open its own orientation island. The island opening was listed as a means of increasing the number of depositors/investors available to the combined entity. The island would seem more about funneling unaware investors more than anything else.

However all these plans are on hold, given the post-meeting announcement that the AVIX and Ginko Financial Group merger and its IPO is too risky.

Disclosure: I invest at Ginko bank, in Ginko Perpetual Bonds and on the AVIX stock exchange.

12 Responses to “Ginko Financial’s AVIX Buyout Blocked”

  1. Tyffany Flintoff

    Aug 1st, 2007

    This Ginko affair is purely symptomatic of the fact that there is no disclosure, no transparency, no regulation and certainly no confidence (other than wishful thinking) in the “capital markets” of Second Life. What may have started out as some role play with the aim of earning a few lindens has rapidly developed into a situation where anonymous individuals of unknown “expertise” are collecting considerable amounts of money from neophyte “investors”.

    Fabulous returns are promised, with no facts or disclosure as to where or how these amounts will be earned. All this in a market where the Lindens can and do pull the rug from under a business in the blink of an eye. (How much are your shares in that casino venture worth now)?

    Certain individuals continue to doubt whether Ginko was a pyramid scheme and further claim that we should lend it support and continue to deposit money. If Ginko was doing more than simply recycling cash and was in fact earning enourmous returns from its investments in Second Life – perhaps someone would tell us where they are? Or perhaps the investments were made out of world? Perhaps someone could tell me where in the real world Ginko could make an investment and earn 50% interest so that it could pay depositors 45%?

    The facts are not believable.

    Unfortunately some people do believe in wishful thinking.

    Or greed.

  2. Brennan

    Aug 1st, 2007

    Luckily I only kept a couple Hundred Linden on there to play there lotto (that I have won a couple of times)

  3. Nacon

    Aug 1st, 2007

    It’s almost too good as gambling in my term…… BAN!

  4. shockwave yareach

    Aug 1st, 2007

    Cohort of mine tried to withdraw 27000 to purchase some land. Surprise, they wouldn’t let her. They said the most she could take out was 5K but she couldn’t even get that.

    Anyone who puts money into a play bank with nothing securing it will be very lucky to get money out again. Might as well deposit your cash with Lenny the Hook in the alley off 4th and main for all you’ll see of it again.

  5. Lenny da Hook

    Aug 1st, 2007

    Ah, many thanks for the endorsement Shock!

    I’ll be happily opening accounts with reasonable 5% returns for all those poor suffering Ginko customers, starting today! Remember when you want safe, secure banking with a name you can trust think ‘da hook’!

    That’s ‘da hook’ in the alley off forth and main!

  6. Nina A

    Aug 1st, 2007

    If something went wrong there was no way someone living in the UK could ever get money back from an anonymous person in an American game. Now we know the person’s name, and his location which is Brazil, which makes it even more impossible. It was always a gamble not a bank.

  7. janeforyou Barbara

    Aug 1st, 2007

    I warned here on this 2 times before : Do not trust anyone with your L$!!!

    “Cohort of mine tried to withdraw 27000 to purchase some land. Surprise, they wouldn’t let her. They said the most she could take out was 5K but she couldn’t even get that.

    Anyone who puts money into a play bank with nothing securing it will be very lucky to get money out again. Might as well deposit your cash with Lenny the Hook in the alley off 4th and main for all you’ll see of it again.”

    I was offerd to invest 100.000 L$ at 2% intrrest a week = 104% = thay pay me 104.000 L$
    over 1 yare LOL! = thay pay me 204.000 L$ in 2008,,, Business dont work like that,, not even RL.If all this ppl say are true and safe for you ( as thay do say) i be a multibilloner in no time :-) IMAOO!!
    A good advice : If somting seam to good to be true,, dont do it.You will loose.

  8. Second Lulz Vigilante

    Aug 1st, 2007

    Banks, clubs, and casinos…so many ways to flush your money down the toilet in this game.

    Best way to make more than you put into it is to do custom work for people you know and let word of mouth do your advertising for you. You won’t get rich and you won’t be able to quit your job but you won’t lose anything either.

    All this assumes you have an actual skill like building, textures, animations, or scripting. If not you’re pretty much SOL as far as making any spacebux.

  9. SqueezeOne Pow

    Aug 1st, 2007

    While I do agree with people saying not to trust anyone with your money in SL and not to give up more than you can afford to lose, I do have an interesting annecdote regarding international money issues and knowing true identities…

    I purchased something from a guy in Japan on his web site. It seemed more professional than most of the sites out there. Internet shopping was a bit new to me at the time so having my money wired to the guy’s account didn’t ring any alarms for me (dumb thing to do when looking at that now, I know!)

    So a month passed after the promised delivery time and still nothing. I called the receiving bank and it was already too late to get a refund from them and I’d have to take it up with the guy in question…who lives in Japan.

    What to do?? Well, I looked up his web site on one of the registry sites and got his home address, phone number, personal email and real name.

    I sent him an email addressing him by name and saying if I didn’t have my money returned to me or the product delivered in a week then I’d not only give him a call to chat with him, but I’d also provide his info to anyone and everyone on any message board that had to do with what he was selling (it was airsoft guns if I remember correctly). I’d also consider visiting him in Japan…I’ve always wanted to go anyway!

    Sure enough one week passed and I got my money sent back to my account. It was a total bluff on my part but a little bit of harassment can go a long way!

    Just thought that was appropriate to share in this situation…

  10. jefferey Heart

    Aug 1st, 2007

    This is definitely a symptom of the issues that Second life is now facing. I’ve recently close my own business in Second life seeing the down turn in the economy.

    I kept alot of LINDENS in GINKO over the last year and was lucky enough to be able to draw my lindens out of GINKO via PAYPAL when the LIMITS on withdraw kicked in.

    What we are seeing here with this Bank in the Game is nearly identical to the Bank Collapse during the Great Depression in the US.

  11. Jessica Holyoke

    Aug 2nd, 2007

    I look at the SL financial markets as just another extension of RL financial markets. You don’t invest in what you don’t know or if you do invest in the unknown, you do it at significant risk. That philosophy covers many RL financial markets. The DotCom boom comes to mind of people investing in companies, certainly with disclosure of who they are, but not so much on what those companies do. And they still had investors, and there were still huge losses.

    And there’s nothing wrong with investing on a hot tip you don’t know that much about, or a possible scheme that has a track record but no good information. Just so long as people are aware of the risks and have the information available as soon as possible.

  12. shockwave yareach

    Aug 3rd, 2007

    The dot com era was about greed, pure and simple. Greed that caused normally cautious venture capitalists to throw money left and right at the “new thing” in hopes that they’ll somehow be at the ground floor with the next Microsoft. This caused some of the stupidest ideas to come to life – why would anyone want to buy pet food for 20c less a can and then spend 40c a can for shipping and wait a week while Fido hungrily eyes the cat?

    It IS an excellent corollary to SL though. Just like the internet before, the money people and the existing businesses “don’t get it”. The internet is interactive and it took business half a decade to realize that people aren’t blankly staring at the monitor. I suspect it’ll be a few years more before they understand that SL is playtime for 90% of the people on it, and for most people, play doesn’t mean prostrating yourself in front of a gigantic shoe on the Nike sim just because the investors demand it.

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