Securities Act of 1933 and Virtually Public Companies

I maintain that [most] virtually public companies are subject to the Securities Act of 1933

http://www.sec.gov/about/laws/sa33.pdf

mainly because they:

(1) are issued by an individual, which is specifically covered in the Act
(2) have been issued for value, provided the purchasor bought the L$ from GOM and were transferred it directly into the offering
(3) the enterprise is set up as a PROFIT sharing undertaking, as defined by the act
(4) do not meet the qualifications of exempted enterprises

While I'm not suggesting that any currently publicly traded company register with the SEC, it is plausible if the whole thing is a scam that the initiator could be open to civil and criminal prosecution under the act.

Are there any lawyers in here that specialize in securities laws? I'd be curious to hear their take on it.

Not sure this one is true. Isn't it written somewhere in the TOS that the $L 'does not hold intrinsic value'?

Dunno about the rest. Interesting.

-Ghoti

Yes, it does state that.

However, if you convert real us dollars to a virtual currency, then it is obvious that the L$ does actually have value. i.e. you bought L$'s for VALUE. Add that to the fact that GOM has traded over $2,000,000 USD for L$'s which supposedly hold "no value" and it would probably be pretty hard to convince a court that the L$ actually holds no value.

Additionally, LL's Terms of Service basically constitute an adhesion contract, the weakest form of any contract. Courts have often overturned adhesion contracts when outside facts paint a different reality then the one you are forced to accept.

An adhesion contract is an all-or-nothing agreement dictated by one party in which the other has to accept in its entirety and has no negotiation power. Many TOS and software agreements have been ruled adhesion contracts in courts because if the user declines any part of them, they are shut out of the software.

The problem with applying the 1933 act is that right now SL does not have any securities or publicly traded companies. A public compnay is one that sells shares on an open market. LL does not have a stock market for virtual corporations created in SL-it doesn't even have sl corporations.

That being said the 1933 act is not applicable at this time.

http://slsolutions.org/

I completely disagree. The securities act covers SECURITIES which is simply ownership offered to investors. It clearly applies to SL.

More Information At: http://www.slsolutions.org/





Point 1 accepted.



You lost me here at "provided the purchaser...........". Even if we were ready to accept that the L$ has real value, which I'm not at this point, we're still making an assumption about whether it was purchased for US dollars or was given freely by Linden Lab as a stipend, etc. We could follow this chain even farther, but at the end of the day even the L$ which exists on GOM was at one time or another freely provided by Linden Lab.

I think that, at least for now, the only value that the L$ carries is a preceived value. I don't see a real value here. I could be wrong though, and wouldn't mind being proven wrong at some point. At least for now though, I can't accept point 2.



I think that this falls back on point 2. In order for point 3 to be true, point 2 must also be true. Is a virtual profit a real profit? If so, we must also regulate all of the virtual play money stock exchanges out there on the internet. I can think of some that mirror the real stock market and some which do even more virtual things such as stock in "virtual airlines".

Bottom line, I can't accept point 3, at least for now. If point 2 becomes true, point 3 is worth discussing.



I'll read this and comment at a later time, once points 2 and 3 are established. These are all very interesting questions, and in fact one of the reasons why I set up the equities exchange was to put these kinds of questions to the test. I think it is a GREAT topic for discussion!



It should be pretty clear by now, taking into consideration all of the land purchases, that there is no scam to be found here. Buying all of this land with my money while I.. hold yours(?) would be kind of a wash. There certainly are risks, but there is no scam. The possibility of lawsuits is interesting though. It might be worth discussing after points 2-4 are established.



heh

Anytime you purchase anything for USD$, you are purchasing for value. This meets the legal definition.

Maybe we can start ”donating” our real money (In my case Svenska kronor for example. ) to our avas...

1s and 0s are also technically not money but banks have been trading via computers for years under federal monetary guidelines.

Right but, the federal goverment doesn't insist that this money is completely worthless, while also demonstrating the fact by printing up UNREAL amounts of it every Tueseday to give away free to the entire population.

Countless countries have engaged in the practice of inflation. It does not make their currency "valueless" by itself.

Are you insane? Okay, if the L$ has no real value, can you give it to me? Come on, I'll even pay you one cent per thousand! It's a bargain considering the L$ has no real value!



Irrelevant.



Irrelevant.



There is no such difference. All value is perceived value. The only reason a refrigetor has value, is because you value it. The only reason the L$ has value is because you value it. And you do value it, as the fact you are not giving your L$ wealth to me shows.



I can understand you trying to defend your endeavor by clouding the facts, but I can't possibly see how an intelligent person such as you can possibly believe such nonsense.



We must not.



Point 2 is true.

Government regulation in VR... hmm.... yak spit blah...

You want the U.S. government to protect SecondLife citizens from Virtual investments? I think there may be bigger fish to fry...

Quickly, log off Second Life... take two steps back from your desktop and think about the world you live in, and then think about the world you play in....

The moral of the story is that we regulate things ourselves around here, and if your worried that your investing your toy money in a sham, then just don't invest it. I personally wouldn't give any significant amount of money to an anonymous Avatar, but please make your own decisions...

Now if you'd only feel comfortable investing in a company that does have the disclosure your seeking, then market forces will prevail, and someone will willfully disclose everything. But lets not bring Uncle Sam into this... he does nothing to police or protect my virtual land.

No, a security is very specifically defined in Title I Section 2 (a)(1) of the 1933 act:

"The term "security" means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing."

A security is not simply ownership offered to investors, you don't have a secuity in a partnership. Securites, though traded intangibly, are generally backed by a trasferable legal instrument (like stock certificates). Since there is no mechanism for the in-world tranfer of secutires as of yet, then the 1933 act, or its in world equivalent are not applicable. (3rd party sites not with standing-thanks for pointing that out by the way, its intriguing).
You must be very careful with common sense interpretations of what things are. A security is a very specific legal instrument, as is a debenture.

Yeah well, I wonder what my lawyer thinks.

Do their goverments also claim this currency to be worthless?

If I sell you a leaf (Provided by God free of charge (assumed worthless)), does that make it worth money to everyone?

No, I'll not give you my funny money. If you feel like it has value though, I will sell it to you on GOM. Until LL says it has value though, and makes a few economic adjustments, this is still not the case.





Refridgerators? I suppose we could start talking about commidities and things which are in limited supply. I think that this is an important part of the value discussion, given that our commodities, excepting land, are not. A currency has value though, only due to the fact that a goverment says so. It is backed by the full faith and credit of the goverment.

The Second Life goverment currently values the L$ at 0. Their terms of service state that it is worthless. It can vanish at any time for any reason or no reason. This isn't value. They continually print more rather than implementing taxes to generate the welfare money (and other revenue) they need. This isn't value either.

While I would certainly welcome some changes, this is the situation as I see it.





I'm not clouding anything. The world and it's currency are virtual. I suppose the more important question to ask is, "does this really change anything?", which seems to be the topic of this thread. What I have supplied is simply my own opinion on the topic. There is no need to come here and call me "insane", or accuse me of "clouding facts".

A leaf has nothing to do with what I asked. My question was if these goverments also represented the currency as worthless.

How quickly we forget the days when currency was not backed by government. Long before Uncle Sam rejected the gold and silver standards and established a fiat currency, currency was any substance with value. The division between commodity and currency was once non-existant. It was only with the advent of modern financing in the 16th and 17th century that we began to witness the formation of currency that was inherently valueless, but for the grace of the government.

The L$ is interesting because it is completely opposite from fiat currency. We have currency which has perceived value but which the originator of that currency insists is actually meaningless. However, L$ support of the currency is largely irrelevant. Most (if not all) merchants in SL recognize that the L$ has value, and accept it as payment for goods or services. Ultimately, the artificiality of the currency is meaningless until that final reckoning, when Linden Lab pulls the plug. Until that happens, the market is free to ascribe whatever value to the L$ that it wishes. An interesting analog to the L$ would be the cowry shell, which was an essentially infinite (the supply was several magnitudes greater than the demand). The cowry shell was inherently worthless, yet it persisted as a viable currency in Africa for centuries, before European importation sparked hyperinflation and once again rendered the cowry worthless.

Agree.



Still with you.



I get a little lost here. What I see happening here is gambling. Clearly the odds are currently in favor of the merchant. This doesn't change the fact though, that the merchant is gambling when they take payment in funny money today, that someone will still be willing to convert that funny money into real money tomorrow as they were yesterday. Either that or, as is the case with many merchants, they just want the funny money and could care less if or how well it will convert into real money tomorrow.

I maintain that as long as Linden Lab continues to insist that the currency is worthless, and continues to act like the currency is worthless, it is still funny money. It already can be seen clearly that the ratio at which people are willing to convert funny money into real money is sliding yet again, even after the sweeping welfare reforms of the not so distant past.

Sooner or later (probably much later) a time is going to come when these quick fix welfare reforms won't be enough to artificially stablize the economy anymore. At some point larger economic issues such as supply:demand and tax are going to have to be addressed, or the whole economy is going to fall in on itself like a house of cards. For now though, it does seem to remain a relatively safe bet.




This is interesting.

You can't gamble with something that's worthless.

Let me expand on my point. Volatility in currency is not unique to the "artificial" currency of Second Life. The L$ is no more volatile than most currencies, which fluctuate as corrupt presidents give way to ebullient dictators, when the coca crop gets sprayed with defoliant, or when terrorists pilot large airliners into buildings filled with people. In many second and third-world countries, the local currency is so volatile that it is, for all intents and purposes, very much the "play money" which you describe the L$ as. In these countries, stronger currency (in the form of dollars, pounds, euros, or tangible goods) often supplement the weakened currency. Nonetheless, the "play money" is real currency.

If LL were to announce tomorrow that the L$ isn't inherently worthless, it wouldn't be a magic bullet. The economy would still be as volatile as it is now. Fundamentally, the only way to strengthen the L$ is to ensure that SL's population continues to grow at a healthy rate. LL can declare that the L$ is valuable, but that declaration is meaningless if the people don't believe it. Unless the Lindens wish to suddenly readopt the gold or silver standard, the only way to imbue the L$ with value is to promote the world, improve the code, strengthen the infrastructure, and embrace the population. It is not a simple policy matter.

One more small sidenote on the topic of interesting currency: Scottish bank notes are not legal tender, yet they are accepted currency in Scotland and in a few select locations outside Scotland. They have value not because of the backing of a government, but because the Royal Bank claims they're valuable. Were the Royal Bank to go bankrupt (through some magical act of financial ineptitude which renders them completely insolvent), then these notes would also be worthless and there wouldn't be any recourse for those left holding them. Nonetheless, these notes remain a relatively strong currency.

To me, issued "for value" simply means that they weren't given away. They were traded for something. The issuer saw value in whatever it was that they accepted in exchange for the shares.

For instance, companies can sell shares for cash. They can issue them in exchange for services or as part of an incentive package for a new employee. They can issue them in exchange for an asset being transferred into the posession of the company (a truck, a computer, etc.).

So long as there was some exchange, that's for value, regardless of whether or not there is a *general* intrinsic value to the L$.

My 2 cents.

J