Midas Bank Insolvent – Trouble On The WSE
by Jessica Holyoke on 25/11/07 at 11:27 am
L$ Spacebuck banking risks get real – liquidity crisis spills over to stock exchange
by Jessica Holyoke
The Midas Bank touches insolvency – creates WSE stock ripples
As suggested in the comments on the SL Crime Wave! – L$3 Million Bank Heist!!! story, Midas Bank is another bank facing insolvency.
Mr. Midas Commons owns Midas Bank. He also ran Empire Funds, one of the last known holdings of Ginko Financial. Midas Bank reported 0.10% daily interest on deposits, which places it in the bottom of the Outlander Bank Survey of daily bank rates. Back in February of 2007, Midas Bank was described as being primarily invested in gambling and casinos, but weathered the gambling ban for a time. The deposits were listed as being re-invested in loans, capital ventures and WSE and AVIX investments. As of November 2nd, Midas Bank claimed L$8 million in deposits.
While there have been some concern about Midas Bank’s financials, no public signs of trouble occurred until November 2nd. Midas Commons released a notecard stating that an interest payment that was due on Hope Capital Bonds (HCB) was not paid. Midas reported having L$3.5 million invested in HCB. The Second Life Exchange Commission reports that L$650,000 was owed to Midas Bank as the interest payment on their HCB holdings. The WSE reported on October 16th that there would be no interest payment on HCB as scheduled in early November. Midas Bank contacted the WSE stating that there would be liquidity problems if the interest payment was not paid as promised.
At this self-reporting of liquidity problems, and the previous two weeks of Midas Bank ATM problems, the WSE and LukeConnell Vanderverre determined that Midas bank was insolvent or unable to pay its depositors or bond holders. The WSE de-listed Midas Group High Yield Bonds, Midas Group Financials and Midas Financial Company, and seized the HCB owned by Midas group and any lindens held in Our Bank, the WSE deposit bank. The WSE converted the shareholders and bond holders into mutual fund holders in the WSE Traders Fund (WTF). The WSE also requested that Midas Bank turn over all other assets and the names of depositors in Midas Bank so that they may recover from the insolvency.
WSE virtual stock exchange
Midas Commons at a bank depositor meeting stated that if WSE would make good on their payments owed, then Midas Bank could give all depositors 80 percent back on what they are owed. The statement referred to investors in the bank, not necessarily bond holders and stock holders. Midas Bank states that the WSE owes L$2.1 million in total payments, without saying from what source are those payments. The WTF conversion found one investor in the stock transformed from a L$200 portfolio value to about L$3.53.
After the de-listing of all Midas holdings and the conversion of the stock and bond holders to WTF traders, the Second Life Exchange Commission stepped in. While not explaining why L$650,000 should take away the liquidity of a L$8 million deposit bank, the SLEC accused the WSE of stealing Midas’ assets. The SLEC gave an ultimatum on November 12th of 48 hours to pay out the interest due on HCB. If the WSE did not pay the interest due, they gave the other companies listed on the WSE one week to de-list from the WSE and to re-list someplace else and for other shareholders of HCL to sell off their stocks. The implication here is that the SLEC would publicize anyone’s failure to de-list from a dishonest or unethical exchange. While no company is reportedly de-listing from the WSE, some analysts report that trading has slowed down, either due to the WSE’s actions or the current American holidays. The WSE trading volume for the last 7 days show a one day spike of 4.8 million shares traded and then trading falling around 1.7 million shares or less.
the SLEC has stepped in
The oddity of having a debtor suddenly seize the assets of the creditor after the debtor has been asked to pay has not gone unnoticed. Additionally, the levels of money owed and amount seized may lead this controversy to be the first litigated SL financial case in a RL court. There have been legal investigations by Midas Bank into what to do next against WSE.
Sources: SL CAPEX Forums, Notecards provided by Midas Bank and the SLEC, in world interviews, Outlander Bank Survey and the Second Life Herald Archives – where Jimbo Quality sometimes goes to sleep
anonamouse
Nov 25th, 2007
I hope that thief Luke goes to jail personaly
Kahni Poitier
Nov 25th, 2007
P.T. Barnum was right.
Alyx Stoklitsky
Nov 25th, 2007
Once again, we are shown how stupid the whole idea of e-stock is.
Ann Otoole
Nov 25th, 2007
oh but now there will be a “metals exchange” where carnival patrons can play like they are trading in actual precious metals. and this venture is supposedly backed/insured buy “gold bullion in a swiss bank”. where is the swiss bank sim? its all “virtual” right? one thing is certain: in sl a simple texture changing script can convert lead into gold.
will there be a run on precious metal textures?
anonymous coward
Nov 25th, 2007
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Angel
Nov 25th, 2007
If I get this right… a virtual exchange commission with no legal teeth is going after a virtual stock exchange who failed to pay virtual interest to a virtual bank causing said virtual bank to virtually go bankrupt and the virtual stock exchange who was a virtual debtor has siezed the virtual assets of their virtual creditor’s virtual customers and turned them into…
WTF
which are little more that virtual “tough titties”
Xevious Caesar
Nov 25th, 2007
I’m not sure how SL banks and stock exchanges are fun if they’re just like RL instructions. Maybe someone should capitalize on all this scandal and setup a bank that’s intended to be robbed. I can see some kind of contest were all the hackers deposit some L$ to get a chance at the bank’s security. The first one in; gets all the cash. The bank fixes the holes and the tournament restarts. Now we’re cook’n with gas!
Maria Leveaux
Nov 26th, 2007
Posted by: Kahni Poitier
“P.T. Barnum was right.”
Actually, I think Phineas’s estimates were a little Conservative.
“You can’t Cheat an Honest man”
~W.C. Fields~
If the depositers hadn’t been trying to get something for nothing in the First Place they would still have their money. I have no Sympathy for them.
Maria.
Smart Lindens for Your Second Life Money
Nov 26th, 2007
Second Life Financial News
From: Your 2nd Place Taxesdoes that mean refunds? Quote from the site – You know I was sitting in the Emergency Room with my mom at hmmmm 3a.m. this morning.reading an August edition of Time magazine. Flipping through the pages I s…
Andrea Wilson
Nov 26th, 2007
Great to here that Luke and and the WSE are finally going to get what they deserve. What a thief!
shockwave yareach
Nov 26th, 2007
“You can’t cheat an honest man.”
Sure you can! It happens every day, RL and SL. In RL, all you have to do is bury a tiny detail that no sane person would sign in hundreds of pages of contract, and it’ll get missed 99% of the time. In SL, honest people are being robbed of their spacebucks just by accepting something from someone. In this case though, it is just a case of people creating virtual banks to get rich and then bailing out when things fall apart. And as bad as I feel for people who’ve been ripped off by these “banks” and “VR stocks”, risk is the name of the game in investment. At the same time though, I would like to see any such “risky investment service” declared by LL to be gambling and banned the same way. If losing a few hundred Lindens in a Sploder is so bad, then why is someone running off with Millions and vanishing okay?
Anon
Nov 26th, 2007
Virtual Stock Market? LOL! More fool anyone to sinking their money into this crap.
DaveOner
Nov 26th, 2007
Does anyone else see the irony of the “WTF” fund?
I’ve spoken a few times personally with LukeConnely. I don’t think he’s a thief, just naive to think that this was going to work once he started interracting with other “banks” in the land of no regulation. I personally made a lot of money with the WSE in it’s first 6 months. Hell had I known then what I know now I would have invested a ton more! I guess I was one of the quicker ones!!
History buffs out there could see this as a re-enactment of the “Roaring 20s” and the lead-up to the Depression. The WSE buildings should have been old timey 1900s style with a dress-code straight out of the Fall 1923 edition of the Sears-Robuck catalog! Hell they could have even included a HUD that makes everything turn black and white (as we all know, no one saw in color until the late 50s when color TV was invented)!
Darien Caldwell
Nov 26th, 2007
Well, I’m sure they are having fun in their Warren Buffet inspired RolePlay. Let them have their fun I say.
Skeptical One
Nov 26th, 2007
Anyone who “invests” in a “market” that is unregulated, has no legal framework, and has no forum for conflict or dispute resolution is an idiot. How could any be that dumb?
Fortunate Szondi
Nov 27th, 2007
Here are the two best and most reliable ways to loose Linden Dollars…one is to gamble (banned and rightly so) the other is to invest in Banks in Second Life (should be banned).
Throwing your money in an unregulated bank in second life is just like throwing loaded dice…you’ll crap out every time.
The smart move was to ban casinos…the next smart move is to ban banks. If Linden Labs wants to insure deposits, by all means have banks…if not…they should be history just like the depositors Linden.
DaveOner
Nov 27th, 2007
I just don’t think SL is a legitimate platform for business at this point so all you’re investing in is companies that make the equivalent to Mario and Luigi’s overalls and turtle wings. The only way it could become a legitimate business platform is if…
a) someone actually figured out a way to make it so you could buy RL products or services through SL in a way you can’t already do on the regular internet.
The abilities for that isn’t here yet IMO. A couple groups have come close, though.
b) every account is tied to that person’s RL information thus making them trackable for legal purposes like the regular internet.
I got screwed by some scammer with a web site out of Japan and was able to find the guy’s personal information and emailed him telling him what I knew and that I would start putting that info up on other sites and giving him a call if he didn’t send me my money. He sent my money back! That’s Guerilla International Small Claims Court right there!
Until the above happens investors get what they deserve and should treat it like a game instead of valid investment. The owners of failed “banks” get what they deserve, too, with all types of harassment and bad “press” by angry marks…I mean customers!
Lukes a lying serial killer
Nov 29th, 2007
Jessica,
You have, unfortunately, been misled by many trying to read Lukes “volume” and “turnover” charts on wselive.com. The “volume” is not in L$, it is number of shares traded (volume is the green bars). “Turnover” is the L$ value traded (which is not clearly explained for obvious reasons), which is shown to be steadily decreasing as prices tank and investors lose confidence in Lukes World Scam Exchange.
FYI: Just cause Luke’s an economic serial killer doesn’t mean there are not responsible exchanges out there. There are two exchanges that are members of the SLEC, and two others that also seem to be operated ethically.