Ginko Financial Mess – The Big Picture
by Alphaville Herald on 04/11/07 at 11:51 pm
by Jessica Holyoke
Standing outside the former Ginko Financial sim, it looks like the final nails are going into the coffin of a storied SL institution. Ginko Financial was one of the oldest SL banks, started in December of 2004. Prior to the 2006 population and financial explosions, residents such as Mistress Yummy Lollipop saw Ginko as the best bank that SL had to offer.
Accused of being a Ponzi scheme due to Nicholas Portocarrero’s lack of transparency in his investments, hit by massive withdrawals due to the gambling ban and the Ponzi accusations, and facing a weekend of technical difficulties on the Grid, further fueling the bank run totaling $50,000,000L in withdrawal requests, Portocarrero closed the bank’s doors. All of the accounts he had on deposit were transferred to the World Stock Exchange (WSE), where Portocarrero had a substantial investment in Hope Capital Limited (HCL), the company that owned WSE, and the balances owed were converted into Ginko Perpetual Bonds (GPB).
Portocarrero maintained Ginko Financial’s non-liquid assets, stocks and land, in order to eventually repay the debt to the bond holders. Presumably the liquid assets went to pay the withdrawal requests and any withdrawal request not met became a bond as well. Portocarrero was able to make a bond interest payment on August 10th, after the transfer to the WSE. The WSE also converted shares in Ginko Currency Services (GCS) into GPB’s. In order to increase the value of the GPB’s, Portocarrero attempted to buy back the debt off the market, but was blocked by WSE management. The stated reason was that the WSE wanted Portocarrero to redeem the bonds off the market at the $1L face value and not whatever the current market price was for the bond, likely between $0.10L and $0.25L per bond.
On October 20, 2007, Portocarrero announced on the WSE web page that he was leaving Second Life, Ginko Financial was dissolving, and all GPB’s were being converted into shares of the WSE Trader Fund or WTF and Portocarrero’s shares of HCL were being transferred to the WTF as a fund asset. WTF is described as an investment fund to recoup the losses of victims of fraud and failure on the WSE. For bond holders, they now have a share of a fund that has $100,000L in cash and $15 million in investment assets according to the current WTF financial report, but shares are split between GPB bond holders and the share holders of other failed or fraudulent companies on the WSE. Fund shares are trading on an average of $0.06L per share. Recent records show that GPB’s were trading recently at a rate of $0.08 per bond.
Also on October 20, 2007, Shaun Altman announced a liquidation of Ginko Financial’s known assets. As the holder of the majority of the outstanding bonds, Altman claims that by being a neutral third-party, he is able to sell off the known Ginko assets and distribute the proceeds to the GPB holders by submitting the proceeds to the WSE for distribution to the bond holders as a dividend. On November 1st, he planned to announce the results of the liquidation including what he was able to identify and who was still holding Ginko assets that did not turn them over to the Altman liquidation, which Altman characterizes in the announcement as stealing. That press release has been pushed back as more information is being gathered about Ginko’s assets.
For newer traders, bonds and stocks are two different types of investments. Bonds are loans made to companies or governments. Stocks represent part ownership in a company. The distinction is important because of how liquidation traditionally works. If there are a million shares of a company with no outstanding bonds, and the company has half a million dollars in assets after a liquidation, then the share holders would receive $0.50 per share. If a company has assets of $2 million, $1 million in outstanding bonds and 1 million shares, then the bond holders would be repaid first and the shareholders would get $1 per share. If there were the same amount of outstanding shares and bonds but with $1 million of assets, then the bond holders would be paid $0.50 on the dollar and the share holders would have nothing.
The WTF changed the ownership interest of the bond holders into owning shares of a mutual fund instead of being owed a debt by Ginko. Also, by transferring 34% of the total HCL stock into the WTF, as Fund Manager, LukeConnell Vanderverre has more control of HCL and the WSE. When asked about investor control, Vanderverre replied that the majority of HCL is in the hands of five shareholders so that there would not be a huge sell-off of stock, such as when Shaun Altman left the WSE and HCL as a major share holder and attempted to divest his considerable shares. Additionally, Vanderverre stated that HCL dividends would more than make up for GPB’s failed interest payments. The WTF’s investment profile is mostly in HCL, but contains other representative shares in companies traded on the WSE, to total investments ranging from $15 million to $20 million lindens. Which is good for the twenty-eight other company’s shareholders who’s shares in failed or fraudulent companies have been converted to the WTF.
Altman’s plan does not make a distinction between the debt actually owed and distributing corporate assets to bond holders that are not owed assets, (although it is perhaps unlikely that Altman would recover assets that would meet the obligations of Ginko Financial) and the GCS share holders who found themselves bond holders, who would be owed assets and not a debt, and then back to mutual fund share holders.
On a related note, IntLibber Brautigan reports transferring 8,738,436 shares of BnT holdings that are in Nicholas Portocarrero’s name to Altman as part of the liquidation plan. In real world dollars, at $0.27L per share, BnT is transferring $8,738 US. Ignoring the real world legal issues of bankruptcy liquidation going through the courts, a person abandoning property does not just abandon it to a stock exchange or the company, and if the assets are Portocarrero’s and not Ginko Financial’s, the liquidators are making Portocarrero responsible for Ginko’s failures, something not done with corporations, BnT holdings is also wiping out 67 million shares of the company to reduce Brautigan’s control of BnT. Brautigan would be in control of 60% of BnT holdings, in line with SLEC ethical guidelines of corporate governance. By eliminating 67 million shares, the other 63 million shares would not be hit as hard by selling off 8.7 million. The 63 million shares would go up in value as they represent shares of the same company as 130 million shares, so effect of 8 million shares in the supply won’t depress the trade price of the other shares.
One person that might be mentioned in Altman’s report is Investor Allen. Approached to conduct a leveraged buyout of Ginko Financial, Investor Allen aka Cav Chevalier aka Sal Ackland, former owner of Allenvest Financial, backed out due to doubts raised about Ginko Financial at a press conference about the merger. In Portocarrero’s departure statement on the WSE, he states that Investor Allen has 2.4 million Linden dollars locked into Allenvest. In Investor Allen’s farewell statement, he stated that he gave Portocarrero $3 million in Lindens for Ginko’s liquidity problem. His statement suggests that Portocarrero reduced that debt to zero.
Two other potential asset holders are Empire Funds, now Midas Funds Management and Lotto Networks Unlimited as reported by Nobody Fugazi in August. Ootje Timtam, the owner of Lotto Networks, could not be reached for comment. Midas Commons, the owner of Midas Funds Management, could also not be reached for comment.
Investing?
Nov 5th, 2007
In order to be legit ‘bonds’ they need to be registered with the SEC. I seriously doubt these computer game ‘bonds’ are worth anything but egg on the face of those that ‘invested’.
Obscure Doodad
Nov 5th, 2007
The big picture is % ownership of pixels is not ever going to translate into a quoted book value that Arthur Anderson or any other accountant interested in keeping his or her license would sign off on. When book value is 0, Price/Book Value ratios go to infinite.
Think about it.
Jessica Holyoke
Nov 5th, 2007
Some quick photo notes:
The first one is outside of the former main Ginko financial branch which is actually gated up.
The second one is a Ginko ATM still lying around on the Grid.
The fourth one is the main area of the WSE.
The third one is the new Ancapistan exchange. I took the shot to give balance to the WSE vs. Altman plan without tracking down a shot of Shaun Altman. And while IntLibber Brautigan is the CEO of Ancapistan Capital Exchange, and BnT holdings, which was held by Portocarrero and transferred to Altman, is sold on that particular exchange. But other then the normal sales, Ancapistan doesn’t seem to have anything to do with the Altman plan. Sorry about any confusion that might cause.
Prokofy Neva
Nov 5th, 2007
Do they teach writing in law school? Guess not! They don’t teach journalism, either!
This leaden and dense report amounts to one thing, already reported on the Herald: that Portocarrero’s assets have been demanded by Shaun Altman and in part received, but he and Luke and Intlibber, the other interested parties, are squabbling. No real life law applies, because it isn’t a registered company of real life nor a real stock exchange. It’s kind of like a glorified credit union, or a sort of complicated football pool among friends-turned-enemies. It sort of reminds me of the games of Monopoly my brother and I used to play, where we made up all these rules as we went along, like “If the dice hit my house when you roll them, you have to pay me $1,000 in damages.”
As I’ve explained (http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html), and as Busybody Fugazi explained long before me, when you try to cash out these bonds, you hit something called WICs. These Worldwide Internet Currency thingies are another barrier between these financial entities and the restoration of your original cash. You can cash out to these thingies, but then, there is a cap on them cashing out to Lindens — and then someday, dollars. So it’s pretty rough sledding.
Well, whatever fun people have playing bank and salivating to prosecute bank, there’s a greater meaning to be had in it all:
http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html
anonymous
Nov 5th, 2007
Shaun Altman was not the majority bondholder of GPB, which would require that he owned over 50% of the bonds. He owned 4%, making him the largest single shareholder but nowhere near to being the majority shareholder, despite his comments to the contrary.
These figures were available to the public, as the holdings of the 5 biggest share/bondholders in a given company / bond are viewable by anybody on WSE.
janeforyou Barbara
Nov 5th, 2007
Bla Bla Bla….50 mill L ?? not more then 140K USD— its not ” Banking” its just some geek playing bank and ripping off member for there Linden dollars.
No safty No secure invesment. If it was 5% annual intress and a deparmet in a RL bank
It be more serius. I cant understand how anyone can belive and trust a VR “bank” offering 104% annual intress, its just not possible to run a business based on that.
Prokafy Neva
Nov 5th, 2007
Just in case you stupid people didn’t get that, please please please read the rambling crap I posted at http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html .
Once again, that’s http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html . Because I explain it all here at http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html .
Don’t forget, that’s http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html , my new and lonely webpage I had to set up bc I can’t keep a regular writing job. You know that those bastards at Metaversed screwed me over, right? Fucktards. But I fight back hard. Hard I say. So stop visiting Metaversed or Terra Nova or Clickable Culture or New World Notes or Busybody Fugazi’s blawg or this stupid Herald rag which is no longer even relevant to those of us that run businesses and have lives inside SL and instead stop by http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html and read what I have to say because I’m important and infamous and I show you the greater meaning behind it all.
(I’m also available for podcasts so be sure to read my thoughts at http://slrecord.typepad.com/the_second_life_record/2007/10/ginko-is-gonezo.html and then we can talk. Because I’m important and you want me. Say you want me. Say it. SAY IT!)
Jessica Holyoke
Nov 5th, 2007
to Prokofy…Objection…Relevance. The comment that you made, outside of identifying the parties, does not really count as a complaint about the article, but is rather an attempt to confuse the issue and direct people to your newspaper. The fictional WIC isn’t at issue here. (By the way, that’s how you make an objection.)
Its nice that you wrote about this issue as well. But there’s a lot going on in this situation, with many different parties. Not all blogs and articles talked to both sides and tried to dig deep into what was going on. And no where in this article is the law invoked, other then detailing how something like this is handled outside of Second Life, inside the real courts that you are so fond of Prokofy.
A source close to the Shadows
Nov 6th, 2007
I agree, in part, with some of the previous comments. Yes, the writing is a bit droll. How can it not be? Does anyone besides me read the business section? The story is a pretty good summary of what has happened over the past few weeks in regards to Ginko, etc.
My two cents:
What did you expect to happen? The so called Second Life banks provide no accountability and virtually no identification of the bank owners. Sure, they put up a fan page for their avatar on Wikipedia, but what do you have to be afraid of by giving your real name? I can find out the bank manager’s name at the bank down the street pretty easy, just ask an employee. But in SL, we have to play the anonmynity card — I suspect that its to protect the real people from what would almost certainly be a slew of lawsuits.
What assets are your deposits invested in? At this point, probably a mix of virtual land/stock and maybe some real world investments — maybe a bank CD? The point is that many banks play their cards close — but why? When I visit Vectra Bank in RL, they proudly display their portfolio in their brochure along with the performance over the past few years. You don’t get that in SL.
Finally — People, avatars, whatever, when you deposit your hard earned Lindens in a bank, that money belongs to you. You earned it. You worked hard plunking away on that keyboard to earn it. So why do you turn it over, willy-nilly, to whomever comes along and starts a SL group with the name ‘bank’ in it somewhere? Everyone out there needs to realize this — you own your money. Not the bank, not the Linden Lab, hell not even the government. You own it. Would you leave your kid with a babysitter without checking references? Would you take your car to a back yard mechanic? Then why would you store something just as important with a phantom avatar?
Prokofy Neva
Nov 6th, 2007
No, Jessica, don’t be silly. It’s sure as hell not extraneous if you can’t cash out the GPB into Lindens, that cash out into dollars, but have another nonce currency inflicted on you, that requires another service charge to access, and which has a limit on it for conversion to Lindens! It makes the entire thing impossible to handle, except to get a few dollars.
Real life law may have applicability; you’d not be a very good judge of that, as you are still busy showing off the lingo they taught you in Law School.
Did you pass the bar yet?
Mark
Nov 6th, 2007
Did Prok pass the bar yet?
I love how a windbagging non-lawyer positions themself as an authority on law, while at the same time denigrating people who are actually being trained in law. The same asshole who defines things as “crimes” all the damned time.
Is the Kraft Dinner done yet? Your kids need to eat, please don’t neglect them by making love to your keyboard all day.
Jessica Holyoke
Nov 6th, 2007
Prokofy,
There are no GPB’s anymore. So how you were able to cash them out for WIC’s before the change in interest type may be slightly relevant. As of now the WTF mutual fund shares are sellable in either linden dollars or WIC’s. Its dependent on the buyer according to the WSE website.
I like how you went from “No real life law applies, because it isn’t a registered company of real life nor a real stock exchange. It’s kind of like a glorified credit union, or a sort of complicated football pool among friends-turned-enemies” to “Real life law may have applicability; you’d not be a very good judge of that”.
UPDATE to the article,
LOT’s Ootje Timtam did contact me to tell me that Portocarrero cashed out months ago.
Midas’ bankruptcy is a whole other thing on the WSE. For more at the moment, checkout out Nobody Fugazi at your2ndplace.com
Devil's messenger
Nov 7th, 2007
The Devil, our Lord Lucifer, wishes to express His appreciation to one
PROKOFY NEVA
for excellent support in allowing Disciple Portocarrero to Steal from others in a most wonderful and devious manner. Upon your arrival in the Lord’s Kingdom, you shall be afforded all the luxuries of a lower, 2nd class demon apprentice.
Congratulations and keep up the good work.
The Most High and Almighty,
Lucifer
-
((And I like your blog, too, Prokofy Neva. Some of us can hardly wait for your arrival. See you then.))
Charles Ponzi
Nov 7th, 2007
“No real life law applies, because it isn’t a registered company of real life nor a real stock exchange.”
Goddamn right! Those bastards who convicted me should have asked Prokofy “Matlock” Neva before they sent me to the big house. I didn’t register my company either, so no real life laws apply! Hot damn! Screw you all, and thanks for the money!
WaffleLeader
Nov 8th, 2007
LULZ SL=SRS business right guys? Oh noes, someone took my e-money in an obvious scam TIME TO THREATEN LEGAL ACTION, ALSO CRUSE CONTROL FOR COOL!!1ONE11!!!