Op/Ed: Exposed & Shamed, SL Banking Silently Slinks Away

by victoria on 06/02/08 at 11:37 pm

by Victoria Wheeler

invest make believe money in make believe hot companies?

Without much fanfare, Linden Labs announced on January 8, 2008 that any Second Life banking and investment business which might, “offer interest or any direct return on an investment” in ANY currency, would be prohibited from doing so as of January 22, unless these activities were performed by an organization with, “proof of an applicable government registration statement or financial institution charter”. This policy decision followed the past few years maelstrom of SL bank closings about which most of us have heard, and through which many SL residents have suffered.

The sad fact is virtually all such SL financial ‘institutions’ were ineptly run at best, Ponzi schemes at worst, and largely the worst case. Although some SL banks being run by financiers with real world creds, and tossing out enough jargon to impress a B-school grad, the bottom line is – Second Life financial trading and banking in particular, has been a bad investment.

One wonders what was behind some of the banks that went under, and I’d like to offer some small insight from personal experience.

Last year this time, I was hired as a freelance writer by a person who owned a reasonably successful SL bank, as they began to launch SL real estate ventures, primarily ‘planned residential communities’. They intended to ‘go public’, which means to offer shares in their firm for investment by any interested parties. This is done through one of the SL stock exchanges. A company publishes it’s business plan (called a prospectus), offers a number of shares for sale, then sits back while the shares are purchased by investors, or not.

I wrote several documents toward this end for my employer, including the initial public offering (IPO)prospectus, progress and special investor reports, as well as descriptive marketing materials for the developments.

This person showed me their real estate properties, and described their business plan in great detail. Communities were laid out on rigid grids under constantly monitored and controlled conditions. I saw the intentionally realistic developments as cold, unimaginative and uninviting. They seemed antithetical to the fantasy spirit of SL. If anything, they were places the typical resident might not want to live for very long. They reflected the values of their progenitor – a business-like convenience that winkingly abided in-world convention, where the high-rolling avatar could ‘play along’ while waiting for his SL investment to produce that promised double digit return.

In my three months of daily association with this person, I observed that they constantly spoke of themselves as ‘a business person’, and repeated their past real world and SL achievements. It seemed as if they were attempting to make themselves legitimate through repetition of such statements. They never once asked a single question about me; had I not volunteered my writing credentials, they may never have known, much less cared, who I was and what I could do for them. They had decided I was the person for the job, someone to do their bidding, and that was it. The pay was generous, so I agreed.

I’ve encountered this personality in the business world before, and while I hesitate to use the dramatic term megalomaniac, their tremendous bravado and self-centeredness was apparent. Having succeeded in an online business in the real world, this person believed they could easily handle their new SL ventures. They viewed SL as yet another chicken poised to be plucked. While believing they are smarter than average, this kind of person has not examined their business risks because their ego prevents them from admitting anything might go wrong due to their lack of experience or information. I believe what happens with many highly ambitious but failed SL ventures is their creators are either fooling themselves, or fooling us, or both.

Also, the failure of high-end profitability of the investment kind in SL just might be because, although SL is delivered via ‘technology’, SL is ultimately about the heart. In spite of the facade of an avatar, SL has the potential to strip a human to the bare bones of their personality, warts and all. Sooner or later, all or part of one’s REAL self could be exposed, even, or perhaps especially, if one runs a profitable SL enterprise. As in the real world, success in SL business is not for persons (or avatars) who are neither experienced, nor honestly in touch with their capabilities.

Through my writing assignments for them, the real name of this SL banker became known to me, and of course, I googled it. I dug up enough information that, while not horrific, showed a history of inconsiderate business behavior. To me, it all added up to an unfortunate situation, and I ‘fired’ myself by flying below this would-be Trump’s ‘radar’, ceasing to respond to requests for more material.

Three months later, their SL bank had closed, and that avatar had disappeared, along with the considerable ‘fictional’ cash reserves of their SL bank. To compound the problem, they had pointed the finger of blame at someone else. I was glad I had seen it coming, and that I never invested a single Linden in their ventures.

The SL stock exchange on which my former employer’s IPO was listed is currently closed. A recorded announcement at that site today informs you the exchange is undergoing rennovation per the Linden’s new investment policy, which they have embraced. I counted, and the word ‘fictional’ in reference to Lindens currency is said SEVEN times by the recorded voice. ‘Virtual’ in relation to currency is mentioned twice. Single references such as ‘simulated’, ‘role playing’, ‘not real’, ‘conditional trading system’, and ‘no monetary value’ are also made. In spite of Linden Labs forbidding ATMs, this exchange plans to get around that problem by not providing interest to its ATM customers. Customers will still reap the benefit of the return on their investments, all in make-believe money.

I also visited another, long-standing SL stock exchange. They appeared to be operational, so I read their policy statement. That policy repeats numerous times that Lindens dollars are ‘VIRTUAL – not real’.

This is great news for potential investors. It surely must mean that even without a cent of real world cash, we can get in on the financial fun by simply telling these institutions to invest our make believe money in their make believe hot companies. I don’t think so. I think some people are in deep denial about Lindens versus real currency.

I predict we’ve not seen the last of this financial derangement, or the possibility that outside governmental and legal involvement may one day bring it all crashing down. It’s still a money hack, and you’re best advised to take your business elsewhere.

31 Responses to “Op/Ed: Exposed & Shamed, SL Banking Silently Slinks Away”

  1. Lionel

    Feb 7th, 2008

    You put my shallowly contrived RSS feeds to shame :D

  2. Tenshi Vielle

    Feb 7th, 2008

    WEWT!! <33 That ranks as one of the more interesting Herald articles yet. See, I told you that guy was a freak. :)

  3. Ari Blackthorne

    Feb 7th, 2008

    Okay… wow.

    A great article.
    Thank you, Victoria.

    It’s really nice to see a good article, informative, instructive and an interesting read – that isn’t hogwash ‘National inquirer” nonsense.

    Thank you. Hope to see more stuff like this here.

    The way I see it a 50/50 split on the trash reporting and the more serious, meaningful stuff like this would likely keep the most readership happy. :)

  4. Prokofy Neva

    Feb 7th, 2008

    Victoria, your claims would be more persuasive if you named the Second Life name, if not in fact the real-life name, of this SL banker who you claim walked away with other residents’ money. If this is an investigative piece, or a tell-all from a former participant, it would have more credibility if names were named — at least an SL name.

  5. rjs

    Feb 7th, 2008

    Good writing, honest assessment, and right on.


  6. Joe Mama

    Feb 7th, 2008

    Hey! Nice story. I just found it through Google. You may want to look into SL Bank. They were written about at virtuallblind.com and in the Wall St Journal. From what I’ve read and have been told, they were the only bank which paid everyone back right away with no limits and questions. May be worth a look see.

    I do agree, however, that most of the banks and financial institutions were run by kids and thus collapsed. The stock markets are trying to skirt the ban and I’m sure LL will amend the new banking policy to include them soon, if it does not already. They are probably illegal in real life anyway.

    Great story!

  7. Nacon

    Feb 7th, 2008

    Normally I would say… Duh, but then… there’s too many retards out there willing to fall for it.

    I no longer think these banking frauds are a big issue anymore…
    I think retardation-plague is happening and at large anywhere on internet. SL Herald is one of them.

  8. Victoria Wheeler

    Feb 7th, 2008

    Prokofy – I am intentionally avoiding ANY potential libel claims here. I know that person has the wherewithal to sue. I’m certain EVERYONE involved with that person’s former SL bank knows that avatar’s name, and likely their real name, too, it’s not a big mystery. There are posts about that person all over the Internets in association with the bank.

  9. SqueezeOne Pow

    Feb 7th, 2008

    Yeah this was good writing.

    I will say, however, that these stock exchanges aren’t the ones misrepresenting L$ as “fictional”. It’s everyone else trying to represent it as “non-fictional”. Anyone who understands currency knows that L$ is indeed fictional because you can’t cash it out anywhere other than at an SL-related establishment. Plus there’s the fact that if LL were to go bankrupt and fold under then there would be no more L$…not even a conclusive record of them.

    I think ultimately the fact that L$ were made in such a way that they could have real world profitability to them is where a majority of the blame rests for what we’ve seen can be. If L$ wasn’t something you could buy with RL$ then this probably wouldn’t have happened.

    This also might be to blame for the fact that most of the content in SL is unimaginative (as pointed out in this article) and downright tacky. People are making these things to make a profit instead of making them to be creative and enjoy seeing others enjoy their creations. It’s not an unusual thing to see if you look at the arts and entertainment in RL. The mainstream is generally bland and unimaginative when compared to what’s below the radar…which usually serves as inspiration/copying material for the mainstream.

    However, it’s too late to change this now. The cement has dried on this system…and the bank failure and subsequent banning is indication of cracks in that cement in my opinion.

  10. SqueezeOne Pow

    Feb 7th, 2008

    Yeah, Victoria’s right in not naming names. Plus there’s the fact that people like Prokofy don’t exactly have a clean record as far as stalking and harassment “in the name of justice” goes. Giving names would just cause problems when she or others start IMing the person and harassing them all the time.

    Then there’s the fact that this piece was more of a reflective article than investigative. Her credibility shouldn’t be in question…from this piece, anyway.

    Good show Victoria!

  11. rjs

    Feb 7th, 2008

    Victoria is correct, real names, or even av names are not needed and this story is not at all a new one. I feel this was not only well written, but informative from the perspective of a person whom had a close association with the situations we have witnessed in SL.


  12. Claude Kirshner

    Feb 7th, 2008

    Excellent article … you’re articulate and to the point as usual.
    A subject such as this required your expertise to write it. Thanks
    for the info. Does this mean I lost that $20M Lindens I invested?? :-)

  13. Darien Caldwell

    Feb 7th, 2008

    Maybe the picture is a clue…

  14. Prokofy Neva

    Feb 7th, 2008

    It’s not a legitimate news story if you have to duck and cover like an anonymous blogger, and not name names. If you can stand by your claim that this person walked away with people’s money, then you can name the name. If you are not willing to name the name, then you shouldn’t make the claim that he *did* steal. Obviously, you’re not a disinterested party, but essentially could be viewed as a disgruntled former employee.

    Somehow, I don’t doubt what you say, but here we have — of all people! — Benjamin Duranske claiming that this is the one straight-up bank that gave back all the money. Oh? Says who? Does Duranske *need* to say that so it can look like he’s balancing his saddlebags, as he has been a one-man jihad against the banks from the get-go?

    So Victoria, I’d appreciate hearing what you have to say, after this claim by Duranske and others that this fellow paid everyone back.

    The willingness for people like RJS who have gone around dumping on banks promiscuously everywhere to do without names is very telling. It’s typical of this fickle and ridiculous public the Herald attracts.

    Squeezeone is like a tar baby, he sticks to you and sticks, and yuck, never lets go. I don’t stalk and harass people in the name of justice, I have no idea what he’s talking about. A well-time email or two to the superior of someone bent on stalking and harassing *me*, however, is just the ticket.

    The idea that I’d start IMing some stranger on the Internet accused by the Herald of banking fraud is preposterous. I don’t do any banking of any significance and certainly don’t need to get involved in IMing someone like this, who sounds dangerous.

    As for fictional currencies, I don’t think I could cash out my Soviet rubles anywhere any more, the country collapsed.

  15. Kalel Venkman

    Feb 7th, 2008

    I am very disappointed in that last comment, Ms. Neva, referring to people with racial slurs. I will have little choice but to add you to BanLink for this intolerance.

  16. Victoria Wheeler

    Feb 7th, 2008


    My article is not news, nor is it investigative reporting. It is presented here as an op/ed piece. It’s my opinion, a description of my experience, a story told from my perspective, and it doesn’t actually matter to this story if Lindens or real money were stolen, not stolen, returned or not returned.

    The points presented here are that a SL bank failed, and that failed SL bank was operated by someone who, in my opinion, appeared to be pompously full of themselves. I’m sure you can relate to that.


  17. anon

    Feb 8th, 2008

    Banks depend on credit. Credit relies on collateral. There is no collateral in SL. Ergo, banks in SL do not work.

    Durr, how do I understanded Economics 101?

  18. Victoria Wheeler

    Feb 8th, 2008

    I don’t know about you, but I have paid for Lindens with USDs from my rl bank account.

    Somewhere along the line, legal tender is traded for Lindens. I understand there’s at least one one way to exchange Lindens back into USDs, or even Euros. Lindens inherently may not be durable goods, but they represent a service agreement, if not a ‘commodity’.

    So, if real world currency can be traded for Lindens, and vice versa, that means real money in, real money out. Buying Lindens is even less abstract than buying commodity futures, bonds or stocks in rl,

  19. Fake is as Fake Does

    Feb 8th, 2008

    Unfortunately, Squeeze, like rjs, and anon, you both fail economics 101 miserably.

    Firstly, everything Squeeze said about the L$ is exactly the same with regard to the US Dollar, which is more properly referred to as a Federal Reserve Note: its entirely fake, not backed by anything. If the US Govt goes tits up, your just as screwed as if LL goes bye-bye. What are the odds of the US going tits up? Less than that of LL, but then again, the L$ has not inflated or deflated wrt the dollar in a couple years, but the USD has inflated against other currencies by about 50% on average (excepting those that tie themselves to the dollar). Inflation is a hidden tax that eats away at your savings and investments. 100 USD in 1913 is worth about 1 USD now. If a European converted 100 Euros to USD five years ago, he’d have lost one third or more of his investment by now.

    Now, lets say a European bank took in 100 million euros from depositors, and stupidly invested it into USD five years ago. They would now be able to pay their depositors 1/2 to 2/3 of their money (assuming no operating expenses),or half to two thirds of their depositors could get their money out, and the last third or half would get screwed, much as what has happened with SL banks.

    In the real world, banks are protected against their own stupidity by the central banks. When a bank screws up, the central bank gets the government to cover the losses, and that cost gets passed on to the taxpayer (i.e. all of us) and we get screwed twice over, while being told about how important it is to bank.

    In SL, nobody blows such smoke up your ass. Every depositor got notecards from their banks ATM that told them their deposits were not insured, that they are assuming all risk, and the bank cannot guarantee repayment. Those are the terms under which everybody deposits funds in SL banks. Anybody who thought otherwise was frankly, a dumbass who deserves to lose their money.

    Now, on to the SL banks themselves: many, if not most, were run by responsible, rational, well intentioned people who presumed that LL did not believe in meddling in the economy in ways that RL governments are known to do that cause economic disasters. Why did they presume that? Cause LL said so. Their terms of service said the rule of the economy was “caveat emptor” or ‘buyer beware’. Pretty simple: you act stupid, dont read the fine print, dont cover your ass, you get screwed.

    Then LL suddenly claims they were told that the L$ was a “gambling chip” by the FBI. Sorry, that never happened.

    LL saw with opensim coming along that since LL is located in locations with insanely high taxes, costs of living, and regulations, which increase the cost of their product massively over potential competitors, Opensim based competitors could easily undercut them on sim prices and tiers. They needed a lot of capital for free fast. So they declared gambling illegal, and the casino sims went bankrupt. LL repod those sims, and they got the servers they were on (which the casinos paid the capital cost for) for free, allowing them to build a new continent for far below their normal cost, so then Jack Linden could sell land for only 2500L$ per 512 square meters at a profit, hoping to drive more private estates out of business, which would start a vicious cycle of estate bankrupcy which would only keep feeding more free sim servers to LL to build low cost continents with that could compete against opensim based grids.

    Along the way, the casino owners drained their Ginko bank accounts within hours of the gambling rule changing. That put Ginko out of business. Midas Bank lost 1/3 of their wealth from the ganbling ban.

    And so many people got bored with SL once they could no longer gamble, that they left and found something more exciting to do, like WoW, or EVE, than building their own limited imaginations. That caused the economy to tank further, driving the value investments of more banks into the toilet.

    So of course, LL decided that any interest rate over 0% is “unsustainable” cause they see the writing on the wall. They want banking charters, even though they know the Federal Reserve Act makes it a felony for any real bank to handle L$.

    They know they wrecked their users economy in their quest for free capital. Fucking over their userbase was never a problem, they figure theres plenty more rubes down the road now that land is cheaper.

  20. Prokofy Neva

    Feb 8th, 2008


    Um, what was *your* purpose in publishing this piece if not to pump up *your* ego, doll? Talk about pompous!

    And at the Herald, “news,” or “interviews” or “op-ed pieces” or “ads” are all barely indistinguishable. The name should be in the piece — or it should come out in the comments. Otherwise it fails. That’s how real-life news works, by the way.

  21. Prokofy Neva

    Feb 8th, 2008

    That’s quite an astounding theory about Jack Linden ROFL!

    The problem is that the Lindens didn’t “wreck” the user economy. The value of the Linden remains the same: you can still cash out 1000 Lindens for about $3.75 US within 24 hours. The Lindens in fact took a big loss from “Supply Linden” and sold a lot less Lindens after the banking crash. But they are recovering already.

    In fact, land prices are up. It’s hard to find anything for under $10/m that doesn’t have ugly signs or a big club next to it. Even off the auction, land sells for at least $7-8/m if not more.

    Look at the traffic on the welcome areas — lots of new people. And not stupid rubes, but many of them using SL for work or education.

  22. Tenshi Vielle

    Feb 8th, 2008

    Porky wants you to name names so she can go harass them in SL. :)

  23. Prokofy Neva

    Feb 8th, 2008

    No, Banshie, Prokofy wants her to name names to back up her claims, which have been challenged by Duranske. I’m inclined to believe her, not him, but she can at least supply a Second Life name, as she points out it’s part of the public record anyway.

  24. rjs

    Feb 8th, 2008

    “Unfortunately, Squeeze, like rjs, and anon, you both fail economics 101 miserably.”

    You are quite misguided and the information you provide is Kindergarten knowledge. Your statements are childish. You don’t have a clue who I am or what I’m worth. My financial position would most likely make you envious. I’ve most certainly never spoken to a person named “Fake is as Fake Does”.

    For another:

    This person that continually insists that a name of some sort is needed to validate what one states. That somehow “credibility” is given when one uses and Avatar name. However, this same person that is known by her avatar name, real life name, etc.. has few sites she can access these days due to being banned. She is disregarded as an idiot no matter where she writes or posts.

    I would just have to say that not only does it not quantify or qualify ones statements by using either your full name or avatar name, but that the person that continually brings up this notion has such little respect that it would most likely have done her good to never use her name.


  25. Kalel Venkman

    Feb 8th, 2008

    And again, I’m being sock puppeted – ignore the idiots, just read the genuine discussion.

  26. Cai Pirinha

    Feb 8th, 2008

    “Um, what was *your* purpose in publishing this piece if not to pump up *your* ego, doll? Talk about pompous!”

    Wow, and that commment comes from somebody that runs not only one but two blogs to pump up *his* ego… Talk about pompous indeed.

  27. Benjamin Duranske

    Feb 9th, 2008

    Interesting article. I prefer to identify subjects, but I understand the writer’s desire to avoid the risks involved in doing that. It cuts both ways; if you ID subjects in an article like this somebody will accuse you of grinding an ax and trying to destroy someone personally. If you don’t, someone will accuse you of being a shoddy journalist. Half the time, it’s the same someone.

    Mainstream narrative non-fiction articles frequently do what was done here — provide an example without identifying details in order to make a larger point. The article serves as a good summary of the generic problems with banking, and I feel it only suffers a bit for its lack of identification.

    The institution here could only have been one of three or four operations anyway, and in any case, it’s gone, so it doesn’t really matter which one it was now.

    I also don’t see any conflict between this article and the interview with Teufel Hauptmann of “SL Bank” that I ran at Virtually Blind, or, for that matter, the Wall Street Journal article that discussed SL Bank in a similar context. I’ll link the interview at VB below if anybody wants to check it out.


    As many readers know, I agree with this article’s writer that a lot — probably most — of the self-styled “banks” in Second Life were insolvent from their inception. But, as the article I linked above points out, at least one was not.

    I’ve profiled both the good and the bad approach “banking” in the virtual world at different times, in different contexts. This article simply focuses on one of the bad ones. It does not deny the existence of one or two responsible operations, rather it says that “virtually all … were ineptly run [or] ponzi schemes.” SL Bank (and likely one or two others that I haven’t heard about) are the exceptions that make it “virtually all,” rather than “all.”

  28. Prokofy Neva

    Feb 9th, 2008

    Wow, what’s *absolutely astounding* about this amazing wriggling, jiggling — and also niggling post by Benjamin Duranske is that he never responds to the challenges here, and answers whether or not the guy that *he* has claimed is on the level and returning all the funds could be guilty of what *this author* says about him, namely, that he walked off with people’s cash.

    An amazing performance, from someone who was willing to string up Ginko on the lamp posts over his belief that people who didn’t read the card, or forgot the card, saying their money was at risk and may not be returned, could somehow have a case that they were defrauded.

    Yes or no, Benjamin, do you, or do you not believe that this person whom you lauded as one of the “good bankers” who returned money could have “walked away with people’s money” as claimed in this article?!

    What an irresponsible nit! In fact, he would like to have it both ways, with his nasty little comment here — nail people to the wall he dislikes, like Nicholas, and put people on a pedestal that he likes, like this SL banker, and say nothing or remain silent about people who share his class and profession, like Bragg.

    I find it HILARIOUS that Duranske could say “it doesn’t matter because it’s gone now,” when the whole point of claiming these operations were pyramid schemes should have been (if it were decent and sincere) about trying to get people’s money back or at least start some honest lawsuit. But that’s not what Duranske is interested in, obviously.

    Let me take this opportunity to point out that the Wall Street Journal, and the ridiculous NPR broadcast that piggy-backed off it, featuring Robert Bloomfield, were both completely off the wall, claiming there was a “recession” in SL and claiming there was some huge loss of money. There wasn’t.

  29. Partyhats Blak

    Feb 10th, 2008

    “Wow, what’s *absolutely astounding* about this amazing wriggling, jiggling”
    … of yours Neva boy, is that the article mentions “SL Banks” in general, not the “SL Bank” featured in Duranske’s interview.


  30. Benjamin Duranske

    Feb 10th, 2008

    Right. The article is clearly talking about “SL banks” generally, not the particular bank profiled at VB.

  31. Cee Ell

    Feb 11th, 2008

    It’s not that surprising; Prokofy seems to have trouble reading and comprehending plain English that doesn’t begin “Gosh, you’re absolutely right, Prok!”

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