The Alphaville Herald

92 Responses to “Ginko Financial’s End-Game”

1. 

   Tyffany Flintoff
   

   Aug 6th, 2007
   

   This is really very simple; these two (or one) know full well that their asses are in a sling. And while I don’t feel for them at all, knowing they have a $700,000 hammer hanging over their heads must make them feel uncomfortable. Playing a computer game, coming up with a sweet little scheme, creaming off a nice pile of money.. and all goes well until the inevitable run begins.

   All of a sudden SL wouldn’t be fun anymore.

   Truly, if Mr Sanchez did have any money available – or the ability to liquidate “investments” and get himself out of this mess I’m sure he would.

   In the meantime they think that staying around to talk and keeping up the appearance of running the business is the only avenue available which doesn’t lead to a court of law.

   I think someone switched signs on them though. They’re in a dead end.
2. 

   Azno Simons
   

   Aug 6th, 2007
   

   With our comment, let us give readers some background of my experience in the banking and lending business. Our company owns both a real life casino (not in SL but RL) as well as a financial lending company. We looked at the option of opening a bank within Second Life and actually went through the domain process (SLTrust). However, when we did some simple calculations about existing returns that current SL banks were claiming, no bank within SL can afford to survive paying any type of interest in excess of about 14% per annum. Our SL bank plan has been shelved as the financial market along with the instability of financial transactions and server based scripting risks. Our plan for the SL bank was to take deposits and invest them within our RL secured (and lien registered) real life asset portfolio. However, once all the costs associated with conversion from SL to RL along with the above mentioned risks, the profit margin for this type of operations would not even pay for one staff member to run this operation. So no SLTrust (for now at least). The Ginko matter is going to fail any day. I can thank my best judgment that I did not deposit funds into Ginko or any SL bank for that matter. Would suggest someone consult with a Brazilian law firm regarding what the chances are for recovery. Also have to ask why Linden Labs has not done anything to protect the remaining assets of Ginko so as to prevent Ginko management from cashing out and disappearing.

   Also find it very interesting that AVIX has been bought by another so called bank in SL who also claims to be able to pay unrealistic interest rates. Ask yourself if SL banks can pay such absurd interest rates when the overall economy of SL almost resembles that of a third world country…

   Buyer beware for those depositors – if it sounds to good in SL (or better than what you would get in the real world), well then it is…
3. 

   urizenus
   

   Aug 6th, 2007
   

   is anyoned the least bit surprised by this? It was clearly a ponzi scheme, the only question was how long they could get people to keep depositing before a run shut down the scam.

   I agree that the Lindens should have warned people about this.
4. 

   Benjamin Duranske
   

   Aug 6th, 2007
   

   Glad to see the Herald covering this seriously.

   Gritty details available to those interested at: http://virtuallyblind.com/category/virtual-law/securities-law/

   Here’s the short, sad summary.

   1) Ginko currently is accepting deposits.
   2) Those deposits are immediately given to earlier depositors to pay off claims.
   3) Those claims are based on earlier promises of 40-100% yearly interest.
   4) Current depositors are promised 44% interest but their money is not invested.
   5) This is illegal.

   There is no debate on any of these points. They are facts.

   So are these:

   * Ginko management has taken, by its own admissions, around US $100,000 from Ginko.
   * That is about 1/3 of the total deposits, discounting for interest.
   * Ginko would have to be making close to 100% a year on investments to cover this.
   * Ginko is invested in Hope Capital stock, unrented builds, and websites “with potential.”
   * These investments have not only not made 100% a year, most have lost money.

   My advice is this:

   To Ginko: Close deposits, liquidate everything, and try to pay people what was deposited.
   To victims: File Abuse Reports. This is fraud just like a phony land sale. It just take longer.
   To Linden Lab: close the accounts, hold the money in trust for the victims. Distribute pro rata.
   To land owners: Return Ginko ATMs if they do not close deposits immediately.
   To remaining Ginko promoters: Shame on you. Reverse your positions. You are hurting people by encouraging deposits.

   Some of your fellow citizens are, right now, giving Ginko more money. I have spent a lot of time at Ginko ATMs the last week and you would be surprised how many people do not know about the problems. They put in their Lindens, and are immediately put at the back of the queue for withdrawal while some lucky guy at the front gets their money. They will never see it again.

   This is over. It is not a subject of debate. It is an ongoing illegal operation. It is a fraud just as much as an empty box scam or a fake land sale. It is just more complex. Stop pretending it is something it is not. There is no “liquidity problem,” it is a series of failed investments supporting a preposterous interest rate that was bound to collapse. It is illegal. End it.
5. 

   Tyffany Flintoff
   

   Aug 6th, 2007
   

   Linden Lab should have taken steps to stop the operation of this fraudulent scheme well before it crashed and at the very least taken steps to close it now. These comments I keep seeing pertaining to Ginko along the lines of “but it’s worked for 2 years, doesn’t that mean it’s legitimate?” are simply misguided and betray the writer’s lack of understanding.

   Philip Linden should go and visit an ATM and watch people continue to be defrauded by Ginko. It’s happening as I write this. Further, I’m sure there are similar schemes coat-tailing this one.

   Since Linden Lab only ever seem to take any action when it appears they may become liable for some crime or misdemeanour, perhaps watching the infrastructure he is responsible for be used to defraud people may have an impact.
6. 

   Apollo Case
   

   Aug 6th, 2007
   

   I think these parts of the interview deserve particular scrutiny”

   —
   Nicholas Portocarrero: ***The deal was, you loan me some money. I’ll pay you interest and do my best to pay you back. I cannot pay 25% of everything back all at once.*** So the loan might need to be restructured, so that it is no longer in the form of an account balance. ***Accountholders are not shareholders and no disclosure agreement was.. agreed to.***
   —

   and …

   —
   Pixeleen Mistral: so that your “investors” might set their expectations based on your insight into the situation – without some confidence in you, the chances of future financing seems dim and without some idea of what will happen, I find it hard to see how anyone would have confidence. your proposition has been “trust me”, but that trust is seriously eroded now. without an accounting of where the money has gone, and what the expected payback is, why would anyone go along with this?

   Nicholas Portocarrero: Define go along with this.
   —
   Note the question is not answered about the accounting of where the money has gone. Similarly, the questions of Ponzi schemes is handled like this:

   —
   Nicholas Portocarrero: According to the standards used by some people, millions of people and major institutions would be engaged in ponzi schemes. Any person with a credit card debt would have to go to jail.
   —

   Portocarrero has not so far disappeared and claims that he will try to repay the money he has received. But it seems that “depositors” will probably not get their money anytime soon.

   —
   Nicholas Portocarrero: Most likely what will happen is this. All account balances will be converted to bonds, with a face value of L$1. Interest payments will be made and slowly they will be bought back and cancelled. Anyone unwilling to wait, may sell them to the market
   —

   The easiest thing to say in hindsight is that one should never have given money to Ginko in the first place.

   We need to have more transparency, competence and accountability from those wishing to set up as financial institutions within Second Life.
7. 

   Nacon
   

   Aug 6th, 2007
   

   Hinoserm Rebus: If GF ends up going away? I still have the software, I might consider selling it — or using it again. I designed the software as a universal platform. It could just as easily be converted to a billing system for a shopping site — which was something we had planned to do. Or something akin to PayPal, accepting payments for other sites

   Pixeleen Mistral: what is the total size of your debts right now?
   Nicholas Portocarrero: Around 200mil

   ….hahaaha, I clearly don’t see how that program is doing them any good.

   People of idiots…. stop making deposits, it’s not gambling. You just lose.
8. 

   Nicholaz Beresford
   

   Aug 6th, 2007
   

   I became aware of Ginko shortly after I started Second Life. Being knowledgeable in the RL financial markets it took me less than 5 minutes to figure out that this was not a bank.

   There is a very simple reason for that. Banks need to make ways to earn money. In the simplest of terms, the interest a bank pays you for savings accounts comes from lending that same money to other people at higher rates or to invest it somewhere else yielding higher profit.

   With the reasonably easy conversion between L$ and real world currency, it is logical that real world interest rates/profit margins would apply. With a pure in-game currency, that might be different, but with the easy conversion real world financial market rules ties itself to this scheme. I think even Mr. Simon’s comment above about being able to offer 14% is in wild excess of the real possibilites, but at least he seems to be able to do the math quite clearly.

   With that said, Ginko is clearly a game of luck or wit, quite like every ponzi scheme. If you know it, and if you are good with timing and being able to control your greed, you may be able to come out with a profit, albeit at the expense of the people further down the queue with less of those skills.

   What I’m seeing now is the stage of self delusion. The next stage will be to write off the money, which is inevitable.
9. 

   Inigo Chamerberlin
   

   Aug 6th, 2007
   

   Linden Lab were hardly likely to warn anyone about the situation – they firmly believe that SL will continue to expand indefinitely. It’s implicit in everything they say and do – Philip made this clear at the Stanford Summit as recently as August 1, where he predicted that a completely-open virtual world architecture – much like Second Life – would result in an online alternate universe several times larger than today’s Internet.

   Which might not seem to have much relevance to the Ginko situation. Until you realise that Ponzis historically have collapsed when the incoming funds have dropped below the interest (plus the scammers cut) requirements.
   In this case, in Second Life, we have been presented with what appeared to be a sustainable Ponzi. There have been a sustained rise in ‘investors’ over time. In RL that has never been the case.
   Under these highly unusual and highly artificial circumstances, with careful adjustment of interest rates, it is possible to run a Ponzi and sustain it – indefinitely if Philip is right and SL grows indefinitely.

   However, in the Ginko case, the Linden Lab decision to ban gambling broke an otherwise sustainable operation – as Linden Lab must have known it would. Certainly some residents saw the inevitable result of the gambling ban. They moved their pre-existing Ginko account holding alts in and, by a combination of withdrawals and transfers, cleared quite substantial sums from Ginko as soon as the gambling ban announcement appeared in the blog.

   It’s a pity the entity controlling Ginko – and I make no distinction between Ginko Financial and GinkoTech here – didn’t understand the inevitable implications of that ban.
   One can only suppose that the entity concerned, having presided over Ginko for several years and found it to be sustainable and not require much attention, was simply not paying attention. Shame that, because prompt action, combined with some decent PR, and Ginko might, and I only say might, have weathered the storm.

   As things stand, I don’t really see it surviving until the end of the year. Pity really, it was a nice little earner for some.
10. 

    TeshiHaint
    

    Aug 6th, 2007
    

    Do you wake up, enjoying the fresh, pixelated central air system of your three-thousand room mansion, only to find your dreams of making it big are ruined by the Yiff joint that sprang-up while you were banging that underaged hooker?

    Do you often find yourself thinking, “Why, this disco club is nice…but a few floating dongs would really liven the place up a bit!”?

    Do you wish to join those that plastered Bill o’Reilley on the flanks of your yacht?

    Do you just want to do it for the lulz?

    Then you may want to consider the PN. We fight the good fight, to win your hearts and minds.

    PN. Riddling public places with penii since time began
11. 

    Anonymous
    

    Aug 6th, 2007
    

    Ginko was just a link in a chain of a series of businesses laundering money in SL, with the gambling ban in place and more scrutiny over SL money transactions the gang that was running Ginko and other laundering operations has simply decided to pull out of SL. Over the next few weeks ginko will have disappeared in all likelyness.

    You people are too focused on your stupid roleplaying to realize how much of SL’s economy is just money changing hands/countries etc for the purpose of money laundering.

    If you look at how many people log in to SL every day you’ll realize they arent just transacting money on penises and poseballs.
12. 

    Csven Concord
    

    Aug 6th, 2007
    

    (still amused after all this time)
13. 

    shockwave yareach
    

    Aug 6th, 2007
    

    While I still think the Gingko is a stupid idea to save money, at least the owner hasn’t derezzed all his gear and taken flight yet. That makes me think a little bit better of him, at least. Nothing keeps him from taking off with the cash. And think about it, 700,000US$ can buy a plane ticket to anywhere and a very nice house at your destination. If he was scamming, the time to scat has come and gone. So perhaps he isn’t scamming.

    My thinking is that he wanted to get in on the next great big thing and establish a name in the virtual world while young, so that his brand name would grow and be valuable in the future. We’ve seen it before with Google and Ebay. And to make business grow, he promised absurd returns. Now the bill for those promises comes due, and it’ll be interesting to see how he rescues his brand from ruin. We’ve seen plenty of dead ideas in the past too, like Pets.com and Peapod. Maybe he isn’t a scammer, but is just a poor businessman. I’m still surprised he hasn’t skipped town with the virtual safe – you’d find it hard to press charges for your 200US$ loss, especially all the way over in Brazil.
14. 

    Viridian
    

    Aug 6th, 2007
    

    Isn’t this exactly what happened in 1929 in the US?
15. 

    Doubledown Tandino
    

    Aug 6th, 2007
    

    Well, everyone has covered most of the points in the comments: Ginko is a scam. Ginko is a game and its obvious Nick and Henoserm are treating it as one.
    Benjamin pointed out the best things to do here:

    “To Ginko: Close deposits, liquidate everything, and try to pay people what was deposited.
    To victims: File Abuse Reports. This is fraud just like a phony land sale. It just take longer.
    To Linden Lab: close the accounts, hold the money in trust for the victims. Distribute pro rata.
    To land owners: Return Ginko ATMs if they do not close deposits immediately.
    To remaining Ginko promoters: Shame on you. Reverse your positions. You are hurting people by encouraging deposits.”

    However, I’d like to draw your attention to Linden Lab. Has anyone stopped a second, taken a step back, and realized that Linden Lab & the Lindex operate similarly to Ginko? Linden Lab, unlike Ginko, simply creates money out of this air. Ginko doesn’t create money, they just spend other people’s money. But Linden Lab may blow up just as Ginko did. Lets say suddenly all the SL residents went to the lindex to cash out?!?! Linden Lab doesn’t have the 30some million cash to pay us all! It’s all the same thing. Ginko skims off the top and also paid big interest. Linden Lab simply creates money and pays themselves with it and even sells it.

    …. and both Linden Lab & Ginko have stated the rules of the game from the beginning. Although plenty of people may seem scammed, from the beginning Ginko stated the rules of their game. Depositors didn’t seem to have a problem when Ginkos interest was so high. LL from the get-go has stated Linden$ are NOT real money…. so when LL’s economy blows up and the linden value drops to nothing and everyone seems scammed, there’s no way in hell LL would then liquidate the company to pay us all back… they would simply continue to play out the game.
    … I’m sure Prokovy came to these conclusions long ago and has written about this. Where is she by the way?
16. 

    Doubledown Tandino
    

    Aug 6th, 2007
    

    To Viridian: It also happened in the late 80s early 90s too with the savings and loan scandals.
17. 

    anon
    

    Aug 6th, 2007
    

    Good Article. And good feedback.

    You know, I, and many other land owners of a sim were ripped off by a sim owner wanting to re-sell his island. Thousands of USD were stolen from us. Linden stood by and did nothing about it. Linden has harbored whatever scams go on in SL for so long with their “It’s a private island” horse garbage that it’s no wonder people continually create accounts and scam with them. Linden wants nothing at all to do with the scamming and I still to date believe they are ultimately accountable. I have argued for quite some time that with no “real” access to the prompt, no way to access your own items etc.. in the database for backup purposes etc.. That indeed Linden is responsible for the material on the servers and what people do on them.

    This is not going to get better until people force Linden via the law to take responsibility for what is on “their” servers. They allow it, they almost encourage the issues and fraud. This needs stopped.

    I along with many others defrauded in SL sent many AR’s to Linden over a two month period while a scammer threw all of us land owners off the sim. Nothing was done. Nothing. $800 USD down the shitter and still on my Visa. Much more for others that were on the sim and owned land.

    Linden will claim the same position in this matter and the saga of fraud on their servers will continue until they are forced to do something about it.

    I would even suggest to you that taking away the voting for avatars without refunding the money paid into it is fraud on the part of Linden.
    I paid real money to vote for other people. And in a single day, all my votes vanished as well as the ability to create such. No refund. That is what Linden wants, that is what Linden gets. No Refunds.

    If you do not have the “real” power to compute at a low level. A sys admin level so to speak, then you certainly are not responsible for what little access you have to the service provided. With access comes responsibility and Linden is the only ones with any real access to anything.

    Fraud will continue, because Linden harbors it and allows it. Ginko Financial is just one other Fraud to add to the growing list of fraudulent activity that puts major USD in the pockets of Linden Labs.

    Cut off the fraud, Linden’s income will subside by 75 percent in Tier and other payments going to them.

    Anshe has said this was fraud long ago. So have many others. Nothing new here, but again, good topics and the replies are quite good as well.

    To those that mentioned money laundering above… Include Linden Labs on that thought. They are just as guilty.

    Thanks
18. 

    Aloe Stradling
    

    Aug 6th, 2007
    

    “To remaining Ginko promoters: Shame on you. Reverse your positions. You are hurting people by encouraging deposits.”

    Yeah. Maybe so. Maybe I should join the problem. You know, if so many shortsighted people hand’t gone apeshit panic over the casino close, the issue never would have happened. But, it did. And now, Because it caused some snags, MORE people panicked and are trying to withdraw, making the problems Worse and worse.

    In other words, Ginko has done pretty damned well for years. Then, stupid people come along and ruin things. All pretty standard, really.
19. 

    SqueezeOne Pow
    

    Aug 6th, 2007
    

    “However, I’d like to draw your attention to Linden Lab. Has anyone stopped a second, taken a step back, and realized that Linden Lab & the Lindex operate similarly to Ginko? Linden Lab, unlike Ginko, simply creates money out of this air. Ginko doesn’t create money, they just spend other people’s money. But Linden Lab may blow up just as Ginko did. Lets say suddenly all the SL residents went to the lindex to cash out?!?! Linden Lab doesn’t have the 30some million cash to pay us all! It’s all the same thing. Ginko skims off the top and also paid big interest. Linden Lab simply creates money and pays themselves with it and even sells it.”

    That’s because SL is a game and the money only has value as long as LL decides it has value. I am constantly baffled by how many people never figured this out or chose to ignore this fact like it would go away when it turns into “the Internet in 3-D!”.

    Reason #328 why anyone depending on SL for income is a fool.
20. 

    Brent C
    

    Aug 6th, 2007
    

    Shockwave, how is Peapod a dead end idea? I use it all the time along with most people I know.
21. 

    Tracy Welles
    

    Aug 6th, 2007
    

    http://www.gcn.com/print/26_20/44810-1.html?topic=&CMP=OTC-RSS

    I will say that the people of Second Life will end up deciding how to tame SL being the FBI and other regulators refuse to do their jobs. Removing gambling was a “political stunt”. Removing the fraud and holding Linden Labs responsible and accountable for the fraud will put this company where they should be. On a fraud list. Linden Labs has it coming… I am one that will help in any way possible to see it happen and will jump at any chance I see to regain the lost fraudulently gained money taken from my own personal self.

    Companies in Second Life need to start listening. Not everyone in SL is a newb in computing. If the companies want to be tied to what is coming in Second Life, all they will have to do is keep supporting it. The end users are tired. And we will have the last word. Companies, any real world companies, are going to have a black eye for having anything to do with Second Life.

    Tracy Welles – Online user in-world Second Life.
    We want the fraud stopped. We want Linden held accountable.
22. 

    Viridian
    

    Aug 6th, 2007
    

    I’ve said it before and will say it again – all of this is due to the ability to purchase (and exchange) L$ for RL cash. The post above by anon is revealing! If LL closes, many people will be quite angry. But guess what? LL has clearly stated that L$ has no RL value….and I assume have therefore covered their rear-ends. I’m of the belief that SL would be a much more creative place if the incentive to earn $ were removed. Yes, there are very creative folks working in commercially valuable enterprises, but fairly little experimental art. Of course I’m biased (and I do not bring in any of my RL creativity because I can’t really afford it) but I’d love for SL to be the really creative place it is so close to being…
23. 

    Drakon Lameth
    

    Aug 6th, 2007
    

    Ok, I see people claiming that Ginko was paying hundreads of percent of interest…

    At it’s current rate (.10%), a deposit of 100L$ will become 144.03 in one year’s time… at most, a 44% annual increase.

    And yes, before you all start accusing me of being a ginko flag waver… earlier in SL time, it was just a rumor that Ginko was going to go tits-up, and I drained my last few L$ from there… I recently came back (to a .08% daily interest rate) to them. Why?

    The very reason the other 18k listed accounts have. A little extra L$ on your money for it to sit around.

    I have my almost 2kL$ on its way back out, yes. I also then plan on putting some of it back in, into their CD-like systems. Mostly to see a good thing try to stay afloat.
24. 

    Anonymous
    

    Aug 6th, 2007
    

    he’s right though. credit cards are also ponzi schemes.

    banks are taking your money deposits and giving them to lots of random folks who have no way of repaying the debts. sure the “rates” are “realistic” but that doesn’t mean the money is actually in the bank. your money is in some 16 yr old kid’s back pocket, on wall street (which could crash any day), or some third world county start up that “might” return a profit. stop me when this all sounds familiar.

    imagine if all of us stormed wall street today. why do you think they invented penalties, account credit delays and such? because not even “legal” banks can afford to pay back large sums of “deposits” all at once, and to hold the RL version of L$ as long as possible before having to actually return it to you in some form.

    also, if the above lady decided to never pay that visa bill, and I’m telling you now it would be exceedingly easy to back out of paying it, she will have conducted the exact same crime we are all referring to. no matter the investment went bad through no fault of her own, and no matter the bank allowed her to spend other people’s money on something so risky (here I parse the above mention of LL being the same as Ginko).

    fact of the matter is, the vast majority of “legal” business practices are criminally dressed up in a pink dress, and conducted by good ol’ boy clubs run by governments who print L$ of their own, and run their own form of lotteries, etc.

    I myself have prolly lost about 3k USD on SL so far, and about the same on TSO several years ago. fact of the matter is, this really IS a game. the reason maxi and lindens don’t “do something about” these events is they figure we’re foolish enough to fall in a hole, we’ll likely do it again. and they are not your granny neither. if they were you’d be mad she was searching your junk, anyway.

    in 80 SL years (next year sometime) we’ll all be seen as nit wits who should have known better, but “really enjoyed the scene while it was there”. they’ll dress up like is in parades and drive 1000 prim, no copy cars made by people who quit right about yesterday, and talk about how it must have been fun to live SL before the crash of 07.

    you are all part of history in the making. enjoy.
25. 

    Olivier
    

    Aug 6th, 2007
    

    ————
    “we would however like to make clear that, in order to pay the interest rate, we must put the money to profitable use. That being the case, we cannot guarantee that we will always have enough to pay people quickly, though we will endeavour to do so. Also, there is inherent business risk involved in this venture. These accounts not being insured in any way by any government, like in the case of most real life savings accounts, we cannot guarantee that we will never go bankrupt.”
    from:
    https://ginkofinancial.com/aboutus.php
    —————–
    Pixeleen Mistral: when will you publish an accounting of your “investments”?
    Nicholas Portocarrero: Never
    —————–

    For sure Ginko is a Ponzi scheme but I’m very surprise by all those critics as the above sentence had been very clearly stated from the start. (Furthermore this sentence is pretty short so pretty easy to read).
    At least the persons behind Ginko said all along clearly their policy (that there will be no transparency), no cheating.

    Ginko is like a casino, you bet on it, you can win or loose and everyone know it, you play if you want, you don’t play if you don’t want. NS is still a game, Ginko L$ accounts are still smalls.

    So I would like to take the defence of Ginko, for their honesty, for the above sentence they made clear all along.

    PS: maybe there was another source of income for Ginko:
    as most residents log only several times to SL and never log in again, maybe a significant number of non-returning resident had made deposit at Ginko … similar stories to Switzerland’s secret banks…
26. 

    Gaius Goodliffe
    

    Aug 6th, 2007
    

    It frightens me how many people seem to think having Linden Labs baby-sit everyone is actually a good idea.

    Do you think the phone company should listen to all your phone calls to make sure the phone system isn’t being used by you to scam other people, or by other people to scam you?

    If you don’t think the president of your phone company should listen to the sob stories of people who gave their credit card numbers to fraudsters over the phone, hoping it’ll have an impact on them to engage in much more invasive policing of how their infrastructure is being used, I guess I don’t see why you think Philip Linden should essentially do the same…

27. The Meshverse Journal
    

    Aug 6th, 2007
    

    Ginko Financial Is Not Meshing

    What always seemed inevitable to me has now happened
    so perhaps paying 60% interest is catching up with the bank? According to Mr. Rebus, there is L$30,000,000 in pending withdrawls at this point – so the L$1,000,000/day limit seems inef…
28. 

    N3X15
    

    Aug 6th, 2007
    

    shut up and go back to bed himo. All Linden needs to do is give a shit, and they won’t. Linden Labs only cares about taking your money.
29. 

    janeforyou Barbara
    

    Aug 7th, 2007
    

    A Ginko Agent asked me 1 yare ago to place a ATM in my Mall…and if i wanted to invest in Ginko …wen i started to ask questions i was told my cash was going to be reinvested in stocks RL. Wen i asked to get info on how and what stocks it got silent in the other end…i found this info ; ”

    “Ginko Financial and its affiliated businesses are not registered in any way with any governmental organization.
    Not warranted, guaranteed, or insured.”

    Is say so on the bottom of there pages.
30. 

    Benjamin Duranske
    

    Aug 7th, 2007
    

    Gaius, big difference between wanting LL to babysit (e.g monitor) and be a responsive, responsible company that protects its customers from other customers’ scams. I *don’t* think that LL had an obligation to halt this until it was clear that it was just as much a fraud as a fake land sale. But now it is. It’s that clear. It’s a simple, five step process that leads to an inescapable conclusion. I’ll copy it from above:

    1) Ginko currently is accepting deposits.
    2) Those deposits are immediately given to earlier depositors to pay off claims.
    3) Those claims are based on earlier promises of 40-100% yearly interest.
    4) Current depositors are promised 44% interest but their money is not invested.
    5) This is illegal.

    It’s a tiny bit more complex than fake land sales, but the big brains at Linden Lab ought to be able to handle it.

    I don’t want a baby sitter, I just want somebody to stop by to take out the trash now and then.
31. 

    Kami Harbinger
    

    Aug 7th, 2007
    

    I don’t see how anyone can have any cause for complaint. They read the terms for the “bank”. They’re all supposedly adults, capable of understanding that 25% interest isn’t possible on normal investments, and that if they “invest”, they may very well get ripped off.

    I’m a little baffled by Ginko’s behavior, though. Why would they pay out anything, once the run started? Maybe they let a lot of L$ stack up and need time to cash it out. If they’re still paying out anything in a week, they’re idiots.
32. 

    Nicholaz Beresford
    

    Aug 7th, 2007
    

    )) Linden Labs only cares about taking your money. ((

    … as do most commercial entities in the free world.
33. 

    Mytwo Cents
    

    Aug 7th, 2007
    

    Sorry, I really don’t quite understand what a lot of people are wailing about. Now some are even calling for LindenLab to intervene…

    People in this game are adults that are considered in RL being able to drive a car, vote for their government, marry, take on mortgages, even carry guns, etc. (please delete where inapplicable for your territory).

    Those people happily invested into an investment scheme (quotes from Ginko website)

    - that is “not warranted, guaranteed, or insured”;
    - that “cannot guarantee that [it] will always have enough to pay people quickly”;
    - that the “accounts not being insured in any way by any government, like in the case of most real life savings accounts”;
    - that “cannot guarantee that [it] will never go bankrupt”

    Also, those people obviously did not spend a second thought on the legitimacy of the promise of an annual interest rate of 60% (0.13% per day)? They did not have any concerns giving money to an anonymous person (“Nicholas Portocarrero”) that claims to be a corporate entity (“Ginko”)? They did not bother to ask for something odd like a banking license or even just personal qualifications of “Nicholas”?

    Those people were simply careless and negligent, and that’s IMHO their own fault not LL’s. Suffer and learn from it. And anybody that has thought about all the above and invested nevertheless should not complain having lost the bet.

    Benjamin, good luck in suing Nicholas Portocarrero. I personally think you have a snowball’s chance in hell to convince any judge in the world that (a) a player in a computer game (b) voluntarily giving (c) play money to (d) another player that (e) says “maybe you get it back but I can’t promise” has any claim to get this play money back.

    Oh btw, is Ginko a fraud, is it a ponzi scheme? Well … Yes, if Nicholas just took the money and spent it. No, if he actually did invest a substantial part of it but could not get the investments to work – not surprisingly since he seems to be a guy in his early 20s that obviously had no idea what he was doing.

    And Benjamin, even your “this is illegal” argument does not really hold; Ginko never said they would instantaneously invest that very amount of money somebody has given them; no bank has the obligation to do so; it is perfectly fine (and legal) to give it to the next guy behind you in the queue if they are investing something in general.

    But I agree with your advice, Nicholas should really shut down the ATMs, start liquidating his assets in an organized manner and pay people back whatever he can. Not because I think he is “legally” obliged to but because I think this is just the right thing to do.
34. 

    SqueezeOne Pow
    

    Aug 7th, 2007
    

    I have to agree with Gaius and Mytwo. The more I think about it the more I think the system is just fine the way it is in this case.

    To those who lost money to Ginko, you have gotten a valueable return on your investments. A powerful life lesson!

    a) don’t invest more than you can afford to lose

    b) read the fine print

    c) ask an assload of questions

    From everything I’ve heard the people that did at least one of the above 3 ended up coming out on top in this situation.

    …and knowing is half the battle!
35. 

    Benjamin Duranske
    

    Aug 7th, 2007
    

    The illegality is pretty technical, but I’m comfortable that the analysis is right.

    It sounds like we’re all pretty much on the same page in terms of what Nicholas ought to do now though, anyway, which is shut things down and distribute what he has as fairly as possible.
36. 

    TF
    

    Aug 7th, 2007
    

    I haven’t read all of the posts, so I apologize if this is completely random. “The clouded Ginko situation is not helped by Mr. Portocarrero complete refusal to explain where he has invested his customers money – but this is how Ginko Financial has always run its business”. Back about a year ago Nicholas Portocarrero invested L$250,000 into a casino which an organization I was a part of ran. The casino probably lasted 6 months until he got bored, impatient and impossible to work with, and then he decided to sell the land the casino was on. From what I remember he only got roughly L$125,000 of his original L$250,000 back, not to mention he didn’t get anything he would have made after his investment broke out of the red. Another strange thing was he had absolutely no grip on our operations and rarely checked in, leaving all of the day to day operations and asset managment to us. What I’m getting at I guess is I wouldn’t be suprised if Nick invested into numerous endeavors such as this, where he in actuality had little to no control over the whole venture. Luckily I took all of my money out of Ginko a long, long time ago, because it looks like years of bad strategy is finally coming to bite them in the ass. Hopefully this gave a little insight as to where Ginko was putting some of their money.
37. 

    Artemis Fate
    

    Aug 7th, 2007
    

    I used to play Chess with Nicholas back before Ginko had gotten off the ground, and he’d talk about his ideas there. I told him it was a bad idea then, and I still think it’s a bad idea now. But he did a lot better and held it out a lot longer than I thought he would.
38. 

    Benjamin Duranske
    

    Aug 7th, 2007
    

    This is from the Securities and Exchange Commission. It might help with the last point “5) This is illegal” that’s still a sticky one for a few people. It’s a fairly clear statement describing exactly what is happening right now via Ginko’s open deposits and queued withdrawal system.

    http://www.sec.gov/answers/ponzi.htm

    It’s short, but here’s the really important parts: “Ponzi schemes are a type of illegal pyramid scheme. [...] Decades later, the Ponzi scheme continues to work on the ‘rob-Peter-to-pay-Paul’ principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.”
39. 

    Tyffany Flintoff
    

    Aug 7th, 2007
    

    >>> I told him it was a bad idea then, and I still think it’s a bad idea now. But he did a lot better and held it out a lot longer than I thought he would.

    No.

    He didn’t do “better” in any sense of the word. He did worse – how is defrauding people who think this is a “bank” of $700,000 in any way “better”?

    And STILL – after all the articles and posts and comments, people STILL do not understand:

    >>>at least the owner hasn’t derezzed all his gear and taken flight yet. That makes me think a little bit better of him, at least. Nothing keeps him from taking off with the cash. And think about it, 700,000US$ can buy a plane ticket to anywhere.

    No.

    It is not “better of him” in any sense of the phrase. By leaving the ATM’s open more people are simply losing their money. Also, he does NOT have $700,000. He OWES $700,000, but he sure as hell has nothing like it. All that cash has just gone to earlier investors who were smart, or rather, lucky enough, to have pulled their cash out.
40. 

    Artemis Fate
    

    Aug 7th, 2007
    

    “He didn’t do “better” in any sense of the word. He did worse – how is defrauding people who think this is a “bank” of $700,000 in any way “better”?

    And STILL – after all the articles and posts and comments, people STILL do not understand:”

    Well, he did better because that’s pretty much what I expected to happen, except much sooner. He kept it going a few years before it happened, and thus he did better than I thought he would.
41. 

    Simone
    

    Aug 8th, 2007
    

    GinkoTec, tied to Hope Capital. There’s a shock.
42. 

    anonymous too
    

    Aug 8th, 2007
    

    Hmm. Let’s see. Ginko turns their dollars into bonds on Hope Capital. The bonds then fall like a russian moon shot. Nicolas then buys the bonds back for pennies on the dollar.

    I wonder what Luke’s cut is.
    
43. 

    Roci Stone
    

    Aug 8th, 2007
    

    I can’t understand most of this. It strikes me that an entity (Linden Labs) has created a fiat currency. The “Linden” has no value. You won’t find it on Foreign Exchange markets. It has no standing. It is not backed by gold reserves, or any nation or Government recognized by any other government, Nation, or the United Nations. “Lindens” ought to be as worthless as Confederate Money (Outside of collectors value.)

    “Lindens” therefore ought to be “convertible” only in Linden Labs’ worlds.

    Anything that makes them convertible to real world Currencies ought to be halted, unless Linden Labs proposes to back the “Linden” and any convertibility it may have with its own “Real World” assets.

    Obviously, Linden Labs did not intend this to happen. Nor do I think they intended to defraud anyone with malice aforethought. But surely, Linden Labs ought to realize that any activity that has the appearance of cheating, Fraud, Attempted Fraud, or any deceit by any user on Second Life, brings Linden Labs beneath the shadow of disrepute.

    Just as obviously, Linden Labs never intended any such occurrence. No company wishes, plots, or plans to have its name and reputation called into disrepute.

    The only question that remains, therefore, Granting that Linden Labs is an Honest business, in fine standing, becomes quite simple.

    *What does Linden Labs intend to do concerning the blatant misuse, possible abuse of, and potential liability for the misuse of its fiat currency?*

    Every hour that these suspect events are allowed to continue lengthens the shadow that is cast not only over “Second Life” but Linden Labs as well.

    As of this moment, I have almost $18.00 USD in “Lindens”. Personally, I consider a box of old collar buttons to be more interesting and useful.

    But what I will consider a greater “injury” would be the forthcoming tangle of lawyers, lawsuits, and general “losses” which might ensue to Linden Labs and their efforts to develop the Technology being perfected in “Second Life.”

    There comes a time when any business must act in its own best interests. For Linden Labs, that time has come. It has also nearly gone. If they do not act, and quickly, I suspect that other powers that be might be forced to take another and far less open minded look at not only the events and players in question, and sadly the parent of all these sad happenings.

    “Roci Shirakawa”
44. 

    Simone
    

    Aug 8th, 2007
    

    It’s really just astounding how many people want to enjoy the freedoms of this ‘world’ and then turn around and whine about being in possession of those freedoms in a situation like this. “Help us Uncle Phily! Save us from our own stupidity! The mean people took my money (even though they stated UP FRONT we might not get it back!) and now we want you to DO SOMETHING about it even though we were too DUMB to see a Ponzi scam for what it was!”

    Look, I’m REALLY sorry people lost money. If I had known friends were handing this guy money I would have told them long before to get the hell out, that it was simply a matter of time. That does not stop the fact that what they did was just dumb, and people like me shouldn’t be punished for the stupidity of others. That happens enough in ‘meatspace’ thanks.

    YES LL should seize assets from this jerk and YES they should split them up to pay people back as best they can, and no LL should NOT stop the trading of Lindens.

    Let’s just call this a bit of fiscal Darwinism. Next time, before you invest in ANYTHING, read the fine print, talk to people who have backgrounds in business or finance or at the very least OPEN UP YER GOOGLE, and do some reading. If you listened to your best friend Barbie when she gushed about interest rates way too good to be true, and rushed to stand behind her in the deposit line without doing any research, then shame on ya.
45. 

    Prokofy Neva
    

    Aug 8th, 2007
    

    Ginko is not illegal in the way Duranske is characterizing it, as it didn’t defraud investors, and printed the terms on the brochure. If you bought this claim, it’s your problem, and you can’t run to the Lindens or likely even RL law. Nicholas RL name, location, and the nature of his investments have surfaced, been examined, and much debated in the past; it has lasted 3 years. That doesn’t necessarily mean it’s legitimate; it means that it is something more complicated than Duranske can fathom.

    Benjamin Duranske has absolutely no legal standing, no standing as prosecutor, no right to practice law within or around Second Life, and no special powers to regulate or control Second Life financial dealings.

    No, we’re “not on the same page” with Benjamin Duranske, as no one has elected or appointed him as magistrate or prosecutor.

    Seriously, the cure is worse than the disease when these kinds of attorneys come barging into Second Life waving around their “credentials”. There doesn’t seem to be any other motive but vanity at work here.

    All that has happened is that Benjamin Duranske, believing himself to be “the smart people” who have “finally shown up” and everyone else “dumb”, is now ranting to the RL media and siccing RL journalists on the story with prefabricated sound-bytes.

    I marvel how this fellow can look the other way at a thousand other real problems in SL involving illegality, immorality, unethical business practices and shady dealings in general and fasten on this. If consenting adults wish to waste their money in an investment club like this which clearly stated the risks and limitations, that’s their funeral. We don’t need a nanny state to save people from themselves. It hobbles the creativity and independence of SL.

    I fail to see what Duranske thinks he gets out of this, besides the obvious glory and ego-pump. A safer and cleaner SL? For whom? People who don’t wish to take financial risks put their money in insured CDs in their RL banks. People who are willing to take more risk put it in PayPal money market, etc.

    The world has to develop its own institutions, sometimes in spite of, or instead of RL law and the realifisms that brain-uploaders like Duranske wish to impose on them in the name of having control over other people. The ego-boost he gets from playing “gotcha” can’t be allowed to destroy the potential of the virtual world.
46. 

    Benjamin Duranske
    

    Aug 8th, 2007
    

    I’ll ignore all the rest of the personal blather, but this goes to the heart of it.

    Prokofy says: “Ginko is not illegal in the way Duranske is characterizing it, as it didn’t defraud investors, and printed the terms on the brochure.”

    That’s wrong. It is illegal. The problem with this argument, parroted from Nicholas by the remaining members of the die-hard lunatic fringe still wholly defending Ginko is that they appear to think it’s fine to screw people if you put it in a contract.

    That’s not true.

    What matters, when you’re talking about fraud, is how the scheme operates. The fine print could say “This is a Ponzi Scheme,” and that wouldn’t make it legal to run it as a Ponzi scheme. “Disclosure” doesn’t change the known facts. Here they are again:

    1) Ginko currently is accepting deposits.
    2) Those deposits are immediately given to earlier depositors to pay off claims.
    3) Those claims are based on earlier promises of 40-100% yearly interest.
    4) Current depositors are promised 44% interest but their money is not invested.
    5) This is illegal.
47. 

    Benjamin Duranske
    

    Aug 8th, 2007
    

    Ginko, did something good today and I want to applaud it. I’m not sure what the motivation is, but it’s a drum I’ve been beating and I’m incredibly happy it happened for the people who haven’t heard about this yet.

    Posted today in the Ginko forums:

    ——————————————————————————-

    From: Nicholas Portocarrero

    Posted: Wed Aug 08, 2007 2:54 pm

    We have stopped deposits to keep people unaware of the situation from depositing money into the system.

    ——————————————————————————-

    Well done, Nicholas, from probably your loudest critic. No joke. That is *exactly* the right next step. Now you need to distribute the funds as fairly as possible, which means based on deposit amount pro rata, not based on who was in the queue first. As of this second, and as long as deposits remain closed, Ginko Financial is *no longer* a Ponzi scheme (it was, of course, up to now — but this is a big, positive sign that Nicholas is doing what he can to a) pay people back, and b) avoid a lawsuit and a jail sentence.) Best news on Ginko in the history of the company.
48. 

    Mytwo Cents
    

    Aug 8th, 2007
    

    I can only agree to Prokofy Neva’s statements. Essentially people are calling for LL to intervene after a resident is not returning a payment that another resident has made to him/her…

    I do however think that Benjamin comments and his coverage of the Ginko affair added a lot of value and contain useful information and analysis. Whether he wants to promote his RL reputation or is just interested in SL and “virtual law” is not too much of a concern to me.

    Also Benjamin, thank you for posting the SEC link because it clearly highlights why Ginko might not actually be a ponzi scheme. The way I see this, there are two possible cases:

    Case One: Nicolas took the money paid to him by residents, exchanged it into US$ and bought himself a nice sports car, a house and a boat. This would make Ginko a ponzi scheme indeed. Would it be a RL case in court? Maybe, but I have doubts (see below).

    Case Two: Nicolas took the money, paid himself a certain fee, but invested the vast majority in various assets. Unfortunately, his business acumen was not as good as he thought it would be and most of the investments are (unsurprisingly) not generating the returns needed. Now an external shock happens that triggers a bank run, depletes the liquid asset base in a day and leaves him unable to pay back all of the money that he is being asked for. This is certainly a deplorable situation for all parties involved, but not a ponzi scheme.

    So is all this now “illegal”? If case two applies – which I think it does – I can’t see this being illegal as a business model. Also, you would need to convince a court to assume that pretending to be a financial institution in what can safely be considered a MMORP*Game* is violating a law. Good luck, and please keep all the escorts, pimps and gorean slave masters posted.

    It is also difficult to accuse him of fraud since he did not only tell you about the risks but even stated explicitly that this investment scheme is unprotected and might go bankrupt. Hence, he did never promised an interest rate but merely stated that he would try to get there.

    There might be a case for fraud it he had asked people to give him real money, but he asked merely for play money and paid back play money – again, in the context of a what can be considered a game. (On a side note to your previous statement, you would also need to convince a court that a “play money now for maybe more play money back later” transaction in a game actually constitutes a legally enforeable contract in the first place.)

    The above even holds now, hence I doubt it can be considered to be “illegal” to leave the ATMs open.

    In short, I don’t think you have a case and believe you would be laughed out of court.

    However, I am nevertheless interested in the “technical illegality” based on which you are comfortable that your analysis is right. And I do indeed agree that he should close the ATMs, based on moral reason not legal ones.
49. 

    Benjamin Duranske
    

    Aug 8th, 2007
    

    Comment here.

    http://virtuallyblind.com/2007/07/31/ginko-buying-avix/#comment-4525

    It’s over. They’re closing everything down and converting people to GPBs (find out what those are here: http://www.your2ndplace.com/node/366)
50. 

    Benjamin Duranske
    

    Aug 8th, 2007
    

    Mytwo – our comments might have crossed. This answers your question. “The problem with this argument, parroted from Nicholas by the remaining members of the die-hard lunatic fringe still wholly defending Ginko is that they appear to think it’s fine to screw people if you put it in a contract. That’s not true. What matters, when you’re talking about fraud, is how the scheme operates. The fine print could say “This is a Ponzi Scheme,” and that wouldn’t make it legal to run it as a Ponzi scheme.”

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