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Meltdown Not Restricted To Real World

In case you're tired of hearing about real life economic problems, you can take heart in the intrusion of real life crime in to the fantasy world economy of Second Life. Alana Semuels of the Los Angeles Times reports on the first Second Life Ponzi scheme:

Stephanie Roberts knew Second Life was just a computer game, but she couldn't resist the virtual world's promise of a real-world interest rate of more than 40 percent.

The 33-year-old from Chicago, who played the game as a raven-haired vixen called Zania Turner, deposited $140 in Ginko Financial and waited for the money to grow. Instead, it vanished five months ago when Ginko, perhaps the first Ponzi scheme perpetrated by three-dimensional online avatars, left Second Life.

I was foolish," Roberts said. So were many others. Ginko took with it about $75,000 in real-money deposits, shaking faith in Second Life's venerated lawlessness - no cops, no courts, no government - and unnerving Linden Lab, the usually laid-back San Francisco company that created it.

It's amazing that it's taken this long for someone to start preying on the hoards of people wandering the Second Life landscape looking to strike it rich. Apparently the mix of laissez faire lawlessness and good old fashion fraud has scared the game owners enough to shutdown all virtual banking in the game. The problem is that it appears to be a system waiting to be exploited over and over again since there's little chance of being caught and even less chance of being charged with a crime. From later in the piece:

Ginko was able to skip town and leave virtually no trail for authorities, if there had been any authorities. Even Linden Lab might not know the identify of the avatar who ran the bank. Company executives declined to be interviewed, but lawyers in contact with unhappy Ginko depositors said they weren't aware of any investigative action taken by the company.

No individual seems to have lost enough money to make filing a lawsuit worthwhile, said Robert Bloomfield, a professor at Cornell University's School of Management who has been following the Ginko case. Because Second Life members live in different countries, "It's not at all clear what jurisdiction you would file suit in," he said.

Given the lack of law enforcement (virtual or real) why wouldn't criminals flock to the service?


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Comments (20)

Read Snow Crash. Another s... (Below threshold)
mantis:

Read Snow Crash. Another step closer...

Some folks have started to ... (Below threshold)
cirby:

Some folks have started to realize that a lot of the "gold farmers" in World of Warcraft are actually hackers who rip off people with high-end accounts.

That gets into real-world crime in a very big way.

Bit of an old story actuall... (Below threshold)

Bit of an old story actually, but I thought it was US$750,000. In fact, the Baltimore Sun store seems to be a composite piece; I've read some of this same material elsewhere.

re: the dollar figure, here's one story that cites $750k: http://www.wired.com/gaming/virtualworlds/news/2007/08/virtual_bank

a fool and their money are ... (Below threshold)
Dave W:

a fool and their money are soon parted

That would "hordes of peopl... (Below threshold)

That would "hordes of people." The money would be "hoards of people."

Of course, unlike ... (Below threshold)
Jason Author Profile Page:
Of course, unlike in Second Life, when someone rips you off you can hunt them down or put a bounty on their head.

Um... This story is about a real crime involving real money, not some snot-nosed kids' fantasy world gold pieces.

Read Snow Crash. A... (Below threshold)
Jason Author Profile Page:
Read Snow Crash. Another step closer...

No doubt this will be met by your usual, predictable derision, but I'm thinking more along the lines of the mark of the Beast in the book of Revelation. No doubt, protection from fraud will be one of the Antichrist's "selling points" for people taking the mark.

Um... This story i... (Below threshold)
Anon Y. Mous:
Um... This story is about a real crime involving real money, not some snot-nosed kids' fantasy world gold pieces.

Really? They accepted actual currency from people? My understanding is that they only took in Lindens, a fictitious currency. They ran a virtual Ponzi scheme with virtual currency. That's not criminal - just sharp gameplay.

No doubt this will be me... (Below threshold)
mantis:

No doubt this will be met by your usual, predictable derision, but I'm thinking more along the lines of the mark of the Beast in the book of Revelation.

Of course you are, you spend much of your time playing the "convert or kill" godwar-porn video game you love so much.

When, at the end of your life, you see that you were not able to witness the apocalypse, will you be sad that the deaths of so many non-believers had never come to pass?

Lindens can be converted to... (Below threshold)
SPQR:

Lindens can be converted to money according to the article.

Yeah, but you can buy Linde... (Below threshold)
JLawson:

Yeah, but you can buy Lindens with real dollars to spend in Second Life.

The current rate is about 269 Linden to the dollar.

http://secondlife.com/whatis/economy-market.php

And I understand some folks make some good money through 'honest' work, creating avatars, clothing, scenery, furniture, houses, art, furnishings and the like. People will pay for what they want, even if it doesn't exist other than some bits and bytes.

Um, the above comment was d... (Below threshold)
JLawson:

Um, the above comment was directed at Anon Y. Mous, if it wasn't clear...

Lindens can be exchanged fo... (Below threshold)

Lindens can be exchanged for US dollars using Linden Lab's currency exchange, thus it has an associated "real" value (though of course, any currency is merely a virtual representation and thus has no "intrinsic" value beyond the material itself).

The question I've not seen answered is: has the US$750,000 worth of Lindens managed to be converted? Though the Linden exchange is the standard manner for conversion, it's not the only one. As anyone familiar with Castronova's early work on virtual world economies is aware, eBay and other sites have provided a means for moving money outside the normal system.

Also, before people go on about how this is all "fake", be aware that Sun Microsystems called Wall Street the world's biggest massive multiplayer game not too long ago. There's a lot of truth in that observation.

People will pay for what th... (Below threshold)

People will pay for what they want, even if it doesn't exist other than some bits and bytes.

Or what they need. I once had to pay a lawyer for nothing more than his oratory skills. Go figure, huh?

Yes, it's true that Lindens... (Below threshold)
Anon Y. Mous:

Yes, it's true that Lindens can be exchange for real currency. But that's true for other games as well. For example, you can head over to Ebay right now and href="http://cgi.ebay.com/Diablo-II-Item-D2-8-Bone-Spirit-3-BA-White-Wand_W0QQitemZ220194084778QQihZ012QQcategoryZ156598QQssPageNameZWDVWQQrdZ1QQcmdZViewItem">buy yourself a bitchin' "Diablo II Item D2 8 Bone Spirit / 3 BA White Wand" for $10.00. So, if within Diablo 2, I make some kind of deal to trade for one of those Bone Wands, and then I just run of with it without giving the other player whatever I promised him, have I committed a crime? The answer is no. I might have broken the games rules, and could be banned by whoever has the server up, but I won't need a lawyer.

At this point, it doesn't look like Ginko's proprietors even broke the game's rules in effect at the time.

I screwed up the link. The ... (Below threshold)
Anon Y. Mous:

I screwed up the link. The mighty ~Diablo II Item D2 8 Bone Spirit / 3 BA White Wand~ can be found here.

At this point, it ... (Below threshold)
At this point, it doesn't look like Ginko's proprietors even broke the game's rules in effect at the time. ... I might have broken the games rules, and could be banned by whoever has the server up, but I won't need a lawyer.
That's actually the issue here. Linden Lab doesn't offer a "game"; just a virtual environment. Furthermore, the company encourages currency exchange (after all, they do collect a small transaction fee). And therein lies the problem because Ginko isn't - afaik, by any rules or precedent currently on the books - guilty of doing anything illegal.

Now how is it that someone can operate what many people have for years called a ponzi scheme, potentially walk away with US$750,000 and not be subject to any oversight? That's the question being asked.

"Now how is it that s... (Below threshold)
JLawson:

"Now how is it that someone can operate what many people have for years called a ponzi scheme, potentially walk away with US$750,000 and not be subject to any oversight? That's the question being asked."

Short form? People are gullible and greedy. All the oversight (and that word has certain 'governmental' connotations) in the virtual world won't change that. What'd be next? Virtual cops and lawyers? Virtual courts? How much manpower should Second Life hire to make sure the virtual world is properly policed?

Hate to say it - but people SHOULD be more wary, more aware that people will possibly attempt to rip you off, and that you should think before you trust them with your money. The real world is not a safe place, but is quite liveable if you're aware of the dangers and think ahead. The internet is full of scam artists looking to get your info - would you send your credit card numbers to a spammer promising to 'enlarge your appendage for great pleasing'?

This virtual world is for adults. Adults are typically thought of as people who can judge for themselves what course of action to take to get to the end goal they desire. And as I said - people can get greedy.

If you want a 'safe' community you might want to try Webkinz. It's kind of fun... if you're 10 or younger. But it's got a LOT of oversight and it's very, very safe.

I think you misunderstand, ... (Below threshold)

I think you misunderstand, I didn't say I was asking that question.

I don't have any issues with what Ginko did because I agree with your sentiments that people should know better. But then I believe the same is true for all the people sitting on adjustable rate mortgages ready to lose their homes because they made some extraordinarily stupid decisions. Talk about gullible. And the country is *full* of these people.

Thing is, we already have government oversight of quite a bit that goes on with regard to the internet. For example, last I heard U.S. citizens can no longer use the internet for gambling. It's illegal. In one small town adults can no longer trick children into thinking they are someone else on MySpace. New law. And so on and so forth.

What makes this whole situation interesting for me isn't that people got ripped off. What makes it interesting is how so many other people seem to think that because Second Life looks like a videogame it's only as relevant as a game.

Like you, they'll mention "virtual cops" or "virtual lawyers" as if the whole thing is preposterous. Yet who polices the anti-gambling laws that went into effect? Who polices the recent changes to the pron industry requiring proof of age for those particular internet sites? Who polices all the other legal requirements placed on companies doing business online? This is no different. It just looks different.

It's still just an image on a computer screen. And what it offers people is no less tangible than what Google offers. No less interesting to some people than poker excitement(!) on cable teevee. No less engaging than reading articles and blog comments on webpages... like your doing right now asshole.

History is full of game-changing technology that people considered of little value for years after their development; the World Wide Web being one of them. PC's are another. How many people laughed at the mere suggestion average people would own a computer back in the early 80's?

A lot. I remember.

P.S. If you got a rise out of my calling you "asshole", ask yourself why. After all, it's just the comment section of some online thing. No offense intended.

From the first paragraph of... (Below threshold)

From the first paragraph of this post, I thought the Second Life now had Social Security.




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