The State of SL Bank

Hello everyone,

On other threads found throughout this forum it has been suggested that SL Bank and other banks in SecondLife are "Ponzi Schemes." Although I can not comment on other "banks" and have no knowledge of other banks' investment strategies in SL or if they are a scam, I can assure you that SL Bank is by no means any kind of scam or "Ponzi." Because it is difficult for me to prove this to be the truth I have decided to, once again, post personal information on myself, as I understand the need for transparency when investing.

I also invite anyone with an active account at our bank to stop by and take a look at our small yet interesting operation if/when you are in real life downtown New York City.

Teufel Hauptmann = Joshua Zarwel
NYU Economics Student
[email]jzarwel@nyu.edu[/email]
35 5th Ave. #611, New York, NY 10003 USA
Phone: Not at this time
Web: http://homepages.nyu.edu/~jsz210/

I want to let depositors of SL Bank be assured that the only possibility of loss would be a result of failed investments and not simply me or any other member of this project "cashing out" and "taking" your L$. As stated on our "notecard" and our TOS, we can not be held liable for any or all LOSS of your investment. Simply scamming or taking your money would not fall under the guidelines of our TOS and I would expect anyone whose money would be stolen in such a situation to file a full lawsuit.

Naturally, you can never be 100% sure that the above is true, and how our depositors respond to this risk is one of the things we are interested in. But, we would ask you to take the above information into consideration when trying to determine if SL Bank is right for you.

Thank you and enjoy your evening!

Teufel, I don't think your depositors are bothered by what people who are afraid to take any risks are saying. Why they are saying it and why they care is beyond me as they refuse to disclose their motive.

I don't think anyone called you a scammer, but it's true that there's no way to tell, no matter how much personal info you post. When taking care of their money, people have to assume the worst, and calculate that in the risks, too.

But yeah, I don't doubt what you said, just still have to caution people. An SL bank has nowhere the guarantees and oversight as a rl bank.

One question is: would you believe yourself? If you were a customer of your SL bank, how sure would you be and what assurances would you have?

Hello,

Yes, I understand these risks and actually, one of the main reasons for this project is to see how people respond to these risks. I simply wanted to repost some personal information I posted once before, on an older thread, as to make finding this information easier.

It seems that once a month we get a "Banks in SL are scams" post in the "general" section of this forum. So I'm trying to get answers to questions in regards to SL Bank on one thread to which people can be referred, rather than cluttering up the boards with repeated responses to similar questions on other threads.

I'm also interested to see how people respond to our bank as more and more information is disclosed.

Cheers!

Why don't you disclose the Bank's investments that are allowing you to return such a high rate of return to SLers who make deposits?

I can give you a head start on your project of how people respond to risk. They either seek it out or they run from it. A bank is typically known for being a safe place to put your money into and in return, earn a few dollars. The banks then take on the risk of loaning out that money, getting a larger rate of return, and paying off the depositors from those earnings.

But in SL, nothing is safer than to keep your money in your own pocket (client). So security isn't the driving factor behind seeking out a bank to hold your money. Which means that a bank in SL must seek out risk takers with the lure of a high rate of return for any deposits they make. So the people who respond are risk takers by nature.

So now the question becomes, how is the bank paying off a high rate of return to its risk taking depositors? Because with such a high rate of return, it means the banker must be taking on enormous risk elsewhere with the deposited funds. Question is, what type of risk is it, and what is the risk level of depositors losing every nickel?

Is the SL Bank buying Oil Futures? Shorting Google Stock? Buying Junk Bonds? Trading Currencies in the Forex Markets? What?

Teufel


I have seen comments on this thread and others, that part of your project is to assess the risk tolerance of investors.

I appreciate this objective and I have absolutely nothing but good will for your experiment.

I do however wonder about the veracity of any conclusions you draw and hope you make your paper available for public consumption.

The reason I query the veracity of any analysis, is that the parameters are continually changing.

When I placed money in your bank, I had no idea who you were, or what your experiment was about. I merely placed a minimal amount as a result of an offer being run. I, for one made absolutely no risk assessment in relation to the bank, but saw it as a gamble, that I may win the prize on offer. There were, another 5 people at the tills opening accounts, all because of the same posting.

I have absolutely no intention of drawing my investment out and couldn't care less whether it has gone or not, yes that makes me highly tolerant to my own managed risk. However, now I know more about your bank, from the forums, I may / may not, decide to add more funds. This additional assessmentt has nothing to do with my initial understanding of your bank, but of reading the forums.

If I did not read the forums, I may be an individual who decides to invest further, with no idea of your experiment. But to try and ascertain the risk tolerance of those two scenarios is impossible, unless you know what information on the bank, that is based on. Therefore the analysis if risk tolerance ignores the factor of 'my knowledge' and possibly assumes all investors have the same knowledge.

I do not however believe this negates the value of the experiment, as you may already have built in analysis tools to deal with this variable, to deal with subsequent deposit and withdrawl, relating to avatars leaving SL, needing money to pay tier, etc. and to handle the bank 'profile building', but I would be interested, as I said in seeing the final paper and having the opportunity to critique.

All the best

I liked the discussion here so much, I decided to reprint for FREE an article from last week's edition of The Democrat, which can be purchased at vendors (search The Democrat) or you can subscribe to it. Enjoy!

WHO CAN YOU TRUST? BANKING IN SECOND LIFE
by Redaktisto Noble
Would you trust your money to an uninsured, unregulated financial institution inworld? "I have to use one," says Sonic Winger with a shrug. "I have no other way I can earn money....I am on a free basic account."
Winger has joined 8390 other residents who have an account with Ginko Financial, one of many inworld banks that offer interest on savings accounts. Ginko currently has about 50 million linden dollars on deposit. The founder and president of Ginko, Nicholas Portocarrero, explains why residents should trust his bank over others: "The biggest difference is age. We've survived through wave after wave of 'disasters', from our first bank run when SL created the 'no telehubs for miles' continent, to GOM's crash and Anshe's declaration of war, not to mention the million technical problems that come up all time." Ginko is recognized as the oldest financial institution still running in SL (it started in December 2004), and it is able to give better-than-real-life interest rates to its customers by making loans, running a lottery, and investing the money in other ventures (such as currency speculation), while maintaining a healthy supply of cash for customers who make withdrawals. Portocarrero has a sunny view of the future of banks inworld: "I think Ginko made people realize that, as crazy as the idea may be, financial institutions in Second Life are possible. The number, size and variety of institutions will continue to grow. There may be bumps in the road, but I think the industry has a future and hopefully, we will be it."
Each bank has its own target market, rates, financial products, and philosophy of banking. META Bank focuses on high yield savings accounts and inworld loans to land buyers. SL Bank works on the basis of transparency with its depositors, including the specific use of its money in various investments. Eldrich Financial offers products that help people manage their land costs. And on it goes, each bank trying to find a niche market. It's tough to hone in on just the right mix that makes a bank profitable. "The constant changes in the SL economy by Linden Labs has made finding a proper business model for the bank difficult at times," complains SL Bank's Teufel Hauptmann. "The introduction of proper tools into SL by LL to make 'loaning' money possible/easier/less risky, would be interesting and something to look out for, although I wouldn't keep my hopes up."
One thing all inworld banks have in common is that, unlike banks in the real world, depositors have no recourse if the bank goes belly up. It is possible for their money to be gone in an instant, and nothing can be done about it since Linden Lab doesn't regulate financial services inworld. And this means that many SL residents are keeping their distance, at least for the time being. Matt Newchurch doesn't have any inworld bank accounts now, and doesn't plan on having one any time soon. "I think it's more or less worthwhile if you believe you need that kind of service, or could pull in that much interest. I think there's a perception problem that's keeping your average user away, though," he explains. "If it's worth socking away my stipend rather than spending it, that word isn't getting out. It just seems like a risk that might not be worth taking."
But for others, like new users with no stipends, or those with lots of spare linden dollars sitting around, the lure of free money is hard to ignore. And as the economy of Second Life grows, so to will its financial institutions.

Hello everyone and thanks for your replies.

Yes, I will make the findings of this project available when it is complete. There are several other factors I am measuring as well as risk tolerance. It has been interesting so far.

To answer the above, let me get a little more specific in what our bank invests in. I will not release our actual strategy as it has taken a good deal of work and effort to build a workable, profitable model in an environment with a constantly changing economic outlook (i.e. stipend changes, inflation changes, sink changes, ad changes, selling of L$ by LL, etc.) and our strategy will be held under lock and key, as to not allow others to simply copy it. We wouldn't want 10 SL Bank clones popping up with people simply following whatever we may be doing.

We invest a good deal in LindeX trading and ForeX. Slightly less goes to higher risk stocks in the real world. 10% is held in world for withdraws. We receive revenue from the ad space in our bank. And another chunk about the size of our stock portfolio is held in world via Land holdings and other projects that are being worked on. This would make our investment higher risk/higher return. We may be offering lower risk/lower return accounts in the near future.

There really is no way for me to get more specific without giving out our investment secrets. Some people have asked us to do an independent audit, which would allow us to keep our strategy safe while allowing our investments & revenue to be verified. Because we are a virtual bank in a virtual world, our holdings are MUCH less than a real world bank. Right now we hold the equivalent of about $4,000USD. Local firms offer to audit for between $150 and $500 per hour. Even a half day, which is their min charge, of four hours would amount to $600 - $2,000 USD, which for the bank would not be financially feasible and probably not necessary for such a project.

Cheers!

You realize these answers don't mean squat to someone who thinks this is either a scam or a misguided mistake. Your refusal to list your assets because of your "secret recipe" rings pretty hollow. I don't know of a legitimate real world public investment that would refuse to list assets. I could be wrong, they might exist, but couple that with the too good to be true return on investment, and it just smells wrong.

It would be great if LL sold Banking Licenses which carried with them strick rules of conducting business. LL has so much potential in leveraging Second Life, but they just never seem to jump on these opportunities...


LL could sell Banking Licenses for some amount. A License would allow whomever to consider themselves a "Bank". LL could have banking regulation policies on issues like, the amount of L$ a bank is required to keep on-demand for every deposit. It could also mandate that funds are prevented from being sold on LindenX. Funds contained within a registered bank can only be loaned to SL players.. Then an contract between the bank and loanee would require repayment. The bank can issue unsecured loans or secured loans backed up with land. Defaults of secured loans revoke a player's land. The bank can then turn over the land to a land baron to sell it, recoup the cash for the bank and take a commission off the sale.

Hell, if LL didn't want to oversee the Banking Industry, it could setup a scenerio where all Banks are Regulated by a Banking Commission of 12 people. Those 12 folks are regular SL players elected through some process.

Banking would be a nice addition to SL, but it does have its downside.. Since SL is nearly a 100% consumer economy, banks loaning out money might have their funds used to buy tshirts and sex toys instead of investment grade development in SL that returns a profit for the loanee, and thus adds to the content of SL. And that means, loans used to buy goods are really credit card loans. Making Banks more of a Credit Card entity. And as we all know, consumer'ism usual leads to debt and default. And if those loans are secured by land, lots of folks might find themselves landless if they miss a payment.

Hello and thanks for your post.

Yes, I do realize that no matter how much info I provide some will still feel the investment may not be valid. I know of a good number of firms which keep their "recipe" for success from the public eye. Everything from investments (investment firms do not give out strategies, but only what they invest in), advisors (give out info only when paid for that info), to software (Microsoft refuses to release their OS code, although they are paying billions in fines to the EU), food (secret sauces and recipes).

Once again, all information on WHAT we invest in has been disclosed. How exactly we invest that money and our strategies will not be released. Naturally some may feel that we are lying, but the only way to verify such information would be with an official audit, which is not financially feasible for a virtual bank and probably would not be possible due to the fact that we are dealing with a virtual currency which as per LL, has no real world value.

The risk associated with such an investment has been factored into our interest rate. If someone feels that the return is not worth the risk, they will rebuff the investment and do something else with their L$.

Cheers!

If you would list your assets and somehow allow an independent person to verify those assets, then you might meet a reasonable standard. When I buy a mutual fund, I can get a prospectus and find out exactly what stocks and bonds the fund invests in and in what amounts. If I buy the stock of a company, I have the right to see annual and quarterly reports which very clearly state the assets of the company. No one is requiring you to lay out your exact strategy, but if you want any credibility you must provide a way for others to verify your assets, not just general statements of what kinds of investments you use.

Hello and thanks for your post. The problem with the above is cost. For a true audit to take place I would need to hire a certified CPA. CPAs cost much more money to hire for such an audit than the bank even holds in deposit. Not to mention, the likelihood of a CPA auditing a virtual currency may be a bit out there. If I were to go the cheap way and just have someone random look at the books and give the OK, the validity of his audit would be under question and people would simply say, "Hey, how do we know what he is saying is true? What if SL Bank simply paid off a guy to say they’re OK?"

Due to the above, as with many projects in SL, we will have to continue to base our project on trust and risk tolerance. This is typical in SL. For example: when you go to an in world casino, even if the casino advertises "99.9% Payout!" You never really know what the machines are set to pay out as the casinos in SL are not audited or regulated, such as in real life Las Vegas. When you invest in a project with a group in world, you don't really know if these people may simply take your money and run (I've seen stories on these boards about someone investing in a project with others in a group only to get booted from the group, after having their land taken). Or renting a plot of land, the land lord could simply take your money and boot you from his or her land. There are many other examples such as lotteries in world, they are not regulated and the person running the lotto could simply send the winnings to an alt he or she made instead of those actually participating in the lotto. With textures, you may end up buying a texture from someone "illegally" as it is easy to resell other people's textures. Pay chairs. When I was new to SL there were a good number of times when I would "camp" a chair only to stand up later and not get paid (invested time with no return). There are a good number of other examples but I assume the point has been made.

I guess we will see how people respond,
Cheers!

Ah yes, everyone else runs businesses that are unverifiable so why not me too, right?

Besides, some of your examples are facetious. Renting land doesn't inherently scream scam. Running a "bank" that is handing out interest at an annual rate of between 49% and 155% does scream scam. Refusing to list assets just about confirms it.

As for the Audit. Think outside of the box. It sounds like you are an NYU student. You can't find a grad student or professor sympathetic to your cause that would be willing to perform an unofficial audit?

I am a grad student and could easily find someone to do such an audit. In fact, I could do it myself. The problem is, the main point of an audit it to have a random, third party examine your business and verify certain information. If I had a fellow grad student do such an audit, the validity of the audit would be hardly worth our time and would only come under fire. The whole point of an audit would be to have a third party at an official firm look through our books and verify. Without the audit being official, there is very little point in executing the audit in the first place, thus we are back to the issue of cost.

Renting land may not scream "scam" nor may many other things, but that does not mean it is not one. By "playing" SL and investing in SL, in a casino, a bank, lotto, a project, whatever, there are unverifiable risks which we must take. Once again, if the risk is more than you are willing to take, you will rebuff the investment and do something else with your L$. If, for some reason, you were forced to invest in our bank, I would understand your argument. As this is not the case, each individual will have to decide for themselves if and when they would invest in such a project.

If I were to publish a balance sheet with all the info on our bank, assets, etc and even pictures of me hugging the bank statement while wearing an SL t-shirt, people would still ask,” How can this be verified? What if they are lying about the numbers and the guy in the picture is doctored?" I mean hey, I have been willing to post a good amount of info on our bank (more so than any other bank in SL history)a nd avidly answer questions, publish my real life name and address, stats, numbers, pictures, etc. and still we are having this conversation. It would seem, that in an online world, the more info you give out, the more fire you come under. So maybe, for the bank's sake, I should stop posting information as the more info that is posted, the more scrutinized we become. Not that I mind this, just an observation.

On a last note, this has nothing to do with “well, if other people do it, so should I.” but rather it comes down to cost and the worth of such an action. I was simply pointing out that in such an online world, it is difficult to cost effectively verify the validity of investments and gambling and more less anything in the online world. The cost simply does not satisfy the need. If you have an economically feasible and realistic way to take such an action, I’m sure hundreds; if not thousands of SL businesses would be interested in your idea, especially those industries mentioned in my previous post. In the meantime, my previous post still stands.

Cheers!

There is no need for an offical audit. Nobody in SL needs a Deloitte & Touche audit report. What folks are asking for is a neutral 3rd party that has the ability to confirm that bank deposits are being put into 1st world investments that yield enough of a return to justify the bank payouts of interest.

Somebody who claims a 100% ROI in 1/year has something funny going on somewhere.... Think about it, name 1 Sure Investment in Real Life that returns a 100% in 12/months? Maybe 5%-20% is do-able, but 100% is called "So Risky, it must be a scam". So if unbias 3rd party cannot confirm and backup your claims and the only info we have to go on is your "promise", it just isn't good enough. People who have been scammed in Ponzi Schemes had been lured in with promises of insane ROIs. Only to turn around one day and wonder where their money went.

Find a well known and trusted SLer to verify your claims. Something thjat simple can't be that hard. Better yet, why don't you scan some monthly investment statements, black out your name, address, account numbers, etc, and let is see the running tallies from month to month. There are lots of things you could be doing to build trust, because posting of promises just doesn't carry much weight. Don't forget to hug it too..

Hello and thanks for your post.

The problem once again would be cost and worth of such an action. If there is a highly respected SLer, whom is also a CPA or knows banking and is willing to come to New York, meet with me for free or no more than maybe a free drink on the bank and audit our books, I would have no problem with that. We would also have to draw up a confidentiality agreement. The likelihood of this is small.

Then there is the worth of such an action from the bank’s point of view. We have had a MASSIVE response to our project. So much so, that we plan to cut interest rates to try and slow growth as we are getting money in faster than we can invest it. Making the bank more transparent will only encourage more deposits, which right now, we don’t want. So, from the bank’s point of view, the whole idea of an audit would be a bad one as it would cost money, time AND encourage more deposits at a time we are trying to slow deposits. Not saying this is moral, but from a business perspective, the audit just can’t be justified. But once again, if there is a HIGHLY respected SLer (Like a Linden) whom would be willing to meet in NYC and audit our books for a free drink, we’d be happy to comply.

As stated on our note card, our investments ARE higher risk. We plan to tone down the risk and our interest rates over the coming month. The problem with this is, SLers look at their L$ as a luxury good. They don't mind risking it. If they were to lose their real world job, SL would be one of the first things to go. Most people still look at our virtual world as a "game." In games, you do lose, at times. The typical SLer, from what we have seen, would rather risk it all for a higher return than risk little for a low one. This is one reason we plan to offer a variety of different risk / return accounts in the near future (to see how people respond). As you stated in a previous post, there is no need for a bank in SL for simple security of L$, and thus int rates must be substantial to entice deposits.

Guess we will see what happens
Cheers!

Sigh, doen't anyone verify his claims?

#1 You are quoting an old note card which read the above before any investments were made, and thus risk, at the time, was next to zero. This was right after the bank opened, and as we waiting for deposits and simply “held” them in “vault” there was no risk other than LL closing SL.

Our note card will change overtime as we change investments and thus risk/int rates.

#2 Quotes from note card:
"These interest rates are amazing! Should I invest my child's college savings?"
No. In order to offer such a high interest rate, we must make investments that can be risky. We advise you to put your child's college savings into a real world CD or other low risk investment option offered at you local real world bank and invest your extra L$ with us. We plan to offer several levels of risk/return ratio accounts in the near future allowing our depositors to diversify to the level of risk they are most comfortable with.

Risks & TOS:
There is no Central Banking System in Second Life, and with the push of a button Linden Labs could send the economy into an immediate, unforeseen tailspin. We have minimized the risk of loss by investing our deposits in a diversified portfolio which includes mainly out of game, but also some in game investments. We invest in real world stocks, bonds, in game advertising, the LindeX, the real world ForeX exchange and land. By opening an account, you certify that you understand the risks associated with such an investment, are willing to take these risks and agree that SL Bank, affiliates and/or bank employees cannot be held responsible or liable for any or all loss of investment. By opening an account you agree not to exceed the maximum daily withdraw limit. TOS can change at anytime.

Advice:
The best advice is to "not put all of your eggs in one basket." By diversifying your in game portfolio you can minimize risk. By investing in different in world banks, items, land, and projects, you can minimize the impact caused by the possible loss of value of any one investment, while still earning a nice return.

**end of quotes**

You are basing your post on an old note card and not mentioning a massive portion of the note card which clearly explains the risk level of this investment...

Considering the person you are responding to is an inworld "Escort" and "virtual sex tutor" I don't think many will base any investment decisions on her opinion anyway

As opposed to alts of freebie sellers like you?

I only sell other people's textures.

Or at least I seriously doubt it. Ponzi's are risky and you can go to jail for a long time if you are caught running one. I have done some research on this guy, and everything I find on the web comes up as true. I emailed his school address and got a prompt reply verifying that he was indeed Teufel Hauptmann. It may be easy to make a false Yahoo or Google email, but it is for sure not easy to get your hands on an email address from an elite university like NYU.

Then there is the return. Most Ponzis I have ever read about offer a MUCH higher return than 60% in a year. Most promise more than that in a month. Most ponzis bring in MILLIONS of USD, SLBank has, what, $4,000USD? Why would this guy risk his future over $4,000?

Lastly, everyone is so awed by how they could make 60% a year? ROFLMAO! I mean hell, I do a little trading on ForeX and I earn a good 100-200% a year easy. Sure it is more risky, but I do it all day, and I'm no pro. My stock portfolio on Scottrade has already made over 40% this year, and I’m just getting started.

I do think that investing in such a project is risky, but what investment in SL isn't? I can understand the questions people have, but for me it is easy; if you don't like the risk, don't invest. Simple.

And for those of you calling SL Bank a "ponzi." Shame on you. You have no evidence of this, no info, nothing. You are simply saying, "well this guy is paying high int and must be a Ponzi!" I guess the best way to set up a Ponzi in SL would be to start a bank with a low interest rate, never post on the forums and never answer questions? If this was truly a Ponzi, and you could prove it, I'd post away, otherwise, you are simply being an a**hole.

Edit: On a last note. Over 7,000 of you idiots have opened an account at Ginko, a "financial institution" which has given you no information on how they make money, no information on who they are, no information on anything, haven't even updated their info card in years, yell at people on the forums when we dare to ask questions while sounding like teenagers on a forum troll rampage, refuse to give out personal info upon request, probably are a Ponzi and yet when SL Bank comes along and gives you all this information and goes through all this trouble to answer questions while acting very professional, you slander and dump on them? LOL. I must be in Topsey Turbey World.

Even with a Virtual Currency? Puhlez.... The judge would laugh and throw the case into the trash can after reading, "Plaintiff suing for loss of fake money in a video game."