Difference between revisions of "Linden Lab Official:Policy regarding inworld banks"

Revision as of 14:48, 30 March 2011

add versioning

Policy

The Second Life Terms of Service prohibit offering interest or any direct return on investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. Linden Lab will remove any virtual ATMs or other objects that facilitate the operation or facilitation of inworld "banking," i.e., the offering of interest or a rate of return on L$ invested or deposited. Those who continue to offer these services may be sanctioned with suspension, termination of accounts, and loss of land.

Usually, Linden Lab lets Residents decide how to act, live, or play in Second Life, but unregulated inworld "banks" brought substantial ecomonic risks to Second Life. Offering unsustainably high interest rates, they are in most cases doomed to collapse, leaving depositors with nothing to show for their investment.

This prohibition does not apply to companies that submit a registration statement, charter, or other applicable license from a governing regulatory authority; or those merely conducting marketing or education, but not accepting payments.

To report a violation of this policy, choose Help > Report Abuse in the Second Life Viewer, and follow the instructions given.

FAQs

What is the reason for this policy?

There are several reasons that make an inworld banking policy necessary:

Legal risks raised by such activity;
Before this policy was enacted, several of these "banks" defaulted on their obligations
Unsustainably high interest rates offered by many of these banks make it likely that others will default as well, which will have a negative effect on Second Life's virtual economy.

By "legal risks," do you mean virtual "banks" may be illegal?

There's no known guiding law or precedent that tells us whether these practices are legal. Depending on what statements each "bank" makes, and what depositors' expectations are, banking or securities laws may apply. If so, they would need to be chartered or registered with applicable real world regulators.

Are any of these "banks" really banks? Who runs them?

We're aware of no chartered banks doing banking business in Second Life at this time. Most of the ATMs into which L$ are transferred are merely run by other Residents. This is usually apparent to Residents when they conduct a L$ transfer, usually to the owner of the ATM at issue. A bank "deposit" thus operates no differently from other transfers of L$ inworld - it's just a transfer of L$ from one Resident to another. And as in the real world, if you do not know or trust another person, you should not ask that person to safeguard your L$.

Why not "virtually regulate" these "banks," instead of banning them?

Linden Lab can't and won't become a virtual banking regulator. Banking regulation, whether in the real or virtual world, is complex and intensive, and is a government activity. Linden Lab is not empowered to regulate the businesses of banking or securities. We can and will take steps, however, to ensure the stability of the Second Life economy, and that is what we are doing.

Will Residents whose L$ are in these banks get their L$ back?

We urge inworld "banks" to live up to any promises they have made, to settle up with depositors, and of course to honor valid withdrawals. To the extent they do not, we will cooperate with law enforcement and other third parties seeking to prosecute or take other action against them. However, as Linden Lab has made clear in the past, we play no role in overseeing or operating these "banks," which are run by individual Second Life Residents. (We've also warned Residents to be wary of these risks.) Thus, the transfer of L$ that one Resident has made to another Resident is ultimately an issue between those Residents. Linden Lab therefore can't enforce obligations that might relate to those transfers. We have no right to do so and we have no way to do so, especially where such a large volume of transactions are at issue. All we can do is to try to make Second Life safer by eliminating behavior that's likely to lead to fraud, harm or illegality. Thus, Residents who believe that a "bank" has not made good on what may have been promised must seek to enforce any such obligations on their own.

Do the inworld "banks" have enough L$ deposits on hand to pay us back?

We have tried to determine whether inworld "banks" have the resources to repay all deposits, and cannot make an accurate judgment. There have been a huge volume of micro-transactions between Residents and "bankers," and it's simply impossible in many cases to (1) reconcile what's owed, (2) reconcile what transactions were related to "banking" and which weren't, and (3) separate these out from unrelated transactions. It's possible that Residents who have transferred L$ to "banks" expecting unusually high rates of interest will be disappointed. Several "banks" that have offered unsustainably high rates of interest have defaulted recently, and this suggests that others using the same business model may do the same.

If these banks can't pay us back before the policy goes into effect, then are you just making this bad situation worse?

No. If inworld "banks" can't live up to their obligations, or if their business models are fundamentally flawed, then we believe the responsible thing to do is stop the activity. This will prevent Residents in the future from losing their L$.

Will you freeze the funds of these "banks" to prevent them from cashing out?

Freezing the accounts of inworld bankers is not an option. Given the sheer volume of transactions among numerous "banks", the apparent cross-dealing within and among banks' various, numerous, and alternative accounts, and the fact that the individual "bankers" also engaged in other, unrelated activities, we could not effectively or fairly distribute these funds, even were we to identify and freeze them.

My bank has defaulted. What can I do about this, and how will Linden Lab help?

If you think you've been defrauded by another Resident, you may of course seek legal recourse. We're preserving records relating to inworld banking activity and (upon proper legal process) will cooperate with attorneys, regulators, or prosecutors to redress fraud and punish "bankers" who have acted in bad faith.

Will this cause a "run on the banks"?

The inworld banking policy may create a "run" on the various inworld banks. We unfortunately have no control over this. If in fact there are insufficient funds to cover what's owed, it would confirm that this type of "banking" activity is inherently risky and flawed, and should be shut down.

Will the individuals running inworld "banks" simply cash out their L$? Will this destabilize the LindeX?

While some imbalance may occur if inworld bankers decide to cash out their L$, we believe any disruption will be minor and temporary.

Are any other inworld businesses, such as stock exchanges, covered by this policy?

As of today, this policy is focused on objects and schemes that involve real-time transfers of L$ and payment of interest or rates of return. Exchanges may or may not do this, so they may or may not be covered. In addition, we reserve the right to remove any objects and take action against any Residents who are violating U.S. or other laws. If you are unsure whether a business you're operating abides by applicable laws (e.g., banking, securities laws), you should get a formal legal opinion, from a personal lawyer acting on your behalf.

@@ Line 1: / Line 1: @@
 <noinclude>{{KBmaster}}</noinclude>
+== Policy ==
 The Second Life [http://secondlife.com/corporate/tos.php Terms of Service] prohibit offering interest or any direct return on investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter.
 Linden Lab will remove any virtual ATMs or other objects that facilitate the operation or facilitation of inworld "banking," i.e., the offering of interest or a rate of return on L$ invested or deposited.  Those who continue to offer these services may be sanctioned with suspension, termination of accounts, and loss of land.
@@ Line 9: / Line 9: @@
 To report a violation of this policy, choose '''Help > Report Abuse''' in the Second Life Viewer, and follow the instructions given.
+== FAQs ==
+===What is the reason for this policy?===
+There are several reasons that make an inworld banking policy necessary:
+* Legal risks raised by such activity;
+* Before this policy was enacted, several of these "banks" defaulted on their obligations
+* Unsustainably high interest rates offered by many of these banks make it likely that others will default as well, which will have a negative effect on Second Life's virtual economy.
+===By "legal risks," do you mean virtual "banks" may be illegal?===
+There's no known guiding law or precedent that tells us whether these practices are legal. Depending on what statements each "bank" makes, and what depositors' expectations are, banking or securities laws may apply. If so, they would need to be chartered or registered with applicable real world regulators.
+===Are any of these "banks" really banks? Who runs them?===
+We're aware of no chartered banks doing banking business in Second Life at this time. Most of the ATMs into which L$ are transferred are merely run by other Residents. This is usually apparent to Residents when they conduct a L$ transfer, usually to the owner of the ATM at issue. A bank "deposit" thus operates no differently from other transfers of L$ inworld - it's just a transfer of L$ from one Resident to another. And as in the real world, if you do not know or trust another person, you should not ask that person to safeguard your L$.
+===Why not "virtually regulate" these "banks," instead of banning them?===
+Linden Lab can't and won't become a virtual banking regulator. Banking regulation, whether in the real or virtual world, is complex and intensive, and is a government activity. Linden Lab is not empowered to regulate the businesses of banking or securities. We can and will take steps, however, to ensure the stability of the Second Life economy, and that is what we are doing.
+===Will Residents whose L$ are in these banks get their L$ back?===
+We urge inworld "banks" to live up to any promises they have made, to settle up with depositors, and of course to honor valid withdrawals. To the extent they do not, we will cooperate with law enforcement and other third parties seeking to prosecute or take other action against them.  However, as Linden Lab has made clear in the past, we play no role in overseeing or operating these "banks," which are run by individual Second Life Residents. (We've also warned Residents to be wary of these risks.) Thus, the transfer of L$ that one Resident has made to another Resident is ultimately an issue between those Residents.  Linden Lab therefore can't enforce obligations that might relate to those transfers. We have no right to do so and we have no way to do so, especially where such a large volume of transactions are at issue. All we <u>can</u> do is to try to make Second Life safer by eliminating behavior that's likely to lead to fraud, harm or illegality. Thus, Residents who believe that a "bank" has not made good on what may have been promised must seek to enforce any such obligations on their own.
+===Do the inworld "banks" have enough L$ deposits on hand to pay us back?===
+We have tried to determine whether inworld "banks" have the resources to repay all deposits, and cannot make an accurate judgment. There have been a huge volume of micro-transactions between Residents and "bankers," and it's simply impossible in many cases to (1) reconcile what's owed, (2) reconcile what transactions were related to "banking" and which weren't, and (3) separate these out from unrelated transactions.  It's possible that Residents who have transferred L$ to "banks" expecting unusually high rates of interest will be disappointed. Several "banks" that have offered unsustainably high rates of interest have defaulted recently, and this suggests that others using the same business model may do the same.
+===If these banks can't pay us back before the policy goes into effect, then are you just making this bad situation worse?===
+No. If inworld "banks" can't live up to their obligations, or if their business models are fundamentally flawed, then we believe the responsible thing to do is stop the activity. This will prevent Residents in the future from losing their L$.
+===Will you freeze the funds of these "banks" to prevent them from cashing out?===
+Freezing the accounts of inworld bankers is not an option. Given the sheer volume of transactions among numerous "banks", the apparent cross-dealing within and among banks' various, numerous, and alternative accounts, and the fact that the individual "bankers" also engaged in other, unrelated activities, we could not effectively or fairly distribute these funds, even were we to identify and freeze them.
+===My bank has defaulted. What can I do about this, and how will Linden Lab help?===
+If you think you've been defrauded by another Resident, you may of course seek legal recourse. We're preserving records relating to inworld banking activity and (upon proper legal process) will cooperate with attorneys, regulators, or prosecutors to redress fraud and punish "bankers" who have acted in bad faith.
+===Will this cause a "run on the banks"?===
+The inworld banking policy may create a "run" on the various inworld banks. We unfortunately have no control over this. If in fact there are insufficient funds to cover what's owed, it would confirm that this type of "banking" activity is inherently risky and flawed, and should be shut down.
+===Will the individuals running inworld "banks" simply cash out their L$? Will this destabilize the LindeX?===
+While some imbalance may occur if inworld bankers decide to cash out their L$, we believe any disruption will be minor and temporary.
+===Are any other inworld businesses, such as stock exchanges, covered by this policy?===
+As of today, this policy is focused on objects and schemes that involve real-time transfers of L$ and payment of interest or rates of return. Exchanges may or may not do this, so they may or may not be covered. In addition, we reserve the right to remove any objects and take action against any Residents who are violating U.S. or other laws. If you are unsure whether a business you're operating abides by applicable laws (e.g., banking, securities laws), you should get a formal legal opinion, from a personal lawyer acting on your behalf.
 [[Category:Policies]]