Controversial Australian Second Life resident LukeConnell Vandeverre (RL: Luke Connell) gave an update on the World Stock Exchange, which has been offline since January.

I wasn’t able to attend the live event due to its time although I was offered a preview over the weekend which I also wasn’t able to make. Nobody Fugazi from Your2ndPLace has a scathing critique of the information provided today: “this seemed like a monotone message of desperation with an Australian accent”.

I’m hoping to glean further information in coming days but it’s safe to say that WSE’s future is still far from assured.

Update: the Second Life Herald has also covered the announcement.

As promised earlier in the week, we managed to catch up with Australia-based CEO of Second Life’s World Stock Exchange (WSE), Luke Connell (Second Life: LukeConnell Vandeverre). I’ve interviewed him a couple of times and the stories always garner a lot of attention.

I need to preface this interview with some kudos for Luke Connell – I IM’d him without notice and he took part in the interview below. Nothing particularly laudable about that. What I found impressive was his agreement for an unedited transcript to appear. As we wrapped up he did ask for the interview to be used as background only, but when I reinforced my intention to publish in full, he agreed. The WSE rightly receives criticism for a lack of transparency in some of what it does but in this case some light has been shed on the thoughts of someone who’s a significant player in virtual world finance. It’s also worth having a listen to the audio announcement currently front and centre on the WSE website as it sets the context for the interview.

If you’d rather not read the whole thing, the main points were:

1. That the WSE is continuing with its current upgrade and intends on reopening as planned.
2. I spent quite a bit of time querying the whole fictional currency argument, to which Luke Connell repeatedly maintained the WSE is a purely fictional exchange. His argument essentially was that if people are investing in virtual stock markets or banks with a view to making real-life profits then there’s a fundamental issue in the way that service has been promoted.

Now for the transcript – the only changes are corrections of spelling:

[20:22] Lowell Cremorne: Hi Luke, happy new year. Was just interested in any comment you had to make on the Linden banking policy – have you got any further clarity from Linden on whether WSE is acceptable or not?

[20:23] LukeConnell Vandeverre: Hi, sure, www.wselive.com then turn your speakers on hehe

[20:30] Lowell Cremorne: thanks for that – have had a listen – is it fair to summarise WSE’s view that the new policy doesn’t affect WSE’s operations and that WSE will no longer offer ATM’s with interest

[20:31] LukeConnell Vandeverre: exactly
[20:31] LukeConnell Vandeverre: our WSE ATM will remain
[20:32] LukeConnell Vandeverre: we will no longer be paying interest on deposits from those ATMs

[20:32] Lowell Cremorne: and I know we’ve discussed this many times before but I notice you really emphasise the fictionality of the currencies being traded – can you explain how you intend on ever being profitable if you truly believe that WIC and Linden Dollars are fictional – i.e. I’m assuming you’d never cash out Lindens for US dollars as can occur on the Lindex?

[20:33] LukeConnell Vandeverre: it’s profitable in terms of fictional currency
[20:34] LukeConnell Vandeverre: The WSE has linden dollar and world internet currency profits only
[20:34] LukeConnell Vandeverre: therefore the virtual business does not deal in real currency
[20:35] LukeConnell Vandeverre: if the license to use those currencies were to be no longer exchangeable for real currency then there would be no real currency involved in the process of acquiring fictional currency

[20:36] Lowell Cremorne: but you know as well as I that setting up WSE would have utilised real world funds and therefore there’s a need for a return on investment – how can you possibly claim you’d never cash out Linden Dollars for US dollars?

[20:36] LukeConnell Vandeverre: setting up wse did not utilise real world funds, it was all done with linden dollars
[20:38] LukeConnell Vandeverre: i’m not saying i’ve never sold my licensed right ot use linden dollars, i’m saying that side of the business has nothing to do with the service I provide

[20:38] Lowell Cremorne: but you must have used real world money to buy the island WSE is now situated on?

[20:39] LukeConnell Vandeverre: yes that part is not WSE though, that is Hope Capital Island

[20:40] Lowell Cremorne: i’m not trying to catch you out on anything here – I’m just always fascinated at your absolute adherence to a view that the currency is totally fictional when the tax office, ASIC and pretty much anyone in the sector has the opposite view

[20:40] LukeConnell Vandeverre: they don’t have an opposite view
[20:40] LukeConnell Vandeverre: firstly ASIC made no official statement and neither has the tax department
[20:41] LukeConnell Vandeverre: ASIC is not involved because the WSE is not providing real life investment services or securities services
[20:42] LukeConnell Vandeverre: The ATO will only tax real life income from real currency

[20:42] Lowell Cremorne: ok let’s put this another way – if you were so convinced that the tax office and ASIC don’t have an opposite view then why the concern about ever admitting that the WIC or Linden Dollars traded on the WSE can be used to make real world profits?

[20:43] LukeConnell Vandeverre: what are you talking about
[20:43] LukeConnell Vandeverre: I think its just that there is confusion
[20:44] LukeConnell Vandeverre: What I am saying is this: the WSE and HCL make fictional currency profits

[20:44] Lowell Cremorne: There is definitely confusion – you maintain that everything you do is fictional in nature yet both yourself and anyone making profits from the WSE as an investor can cash out tomorrow in US dollars

[20:45] LukeConnell Vandeverre: the license to use that fictional currency can be sold for real currency just like any other product and then I can receive real currency, that is how the system works
[20:46] LukeConnell Vandeverre: sure you’re buying a right to use the fictional currency (game tokens) and the value of that right is based on an assigned exchange rate and the amount of fictional currency under control at the time the license is exchanged.
[20:47] LukeConnell Vandeverre: if you end up with more fictional currency (game tokens) and there are sufficient buyers for your licensed right to use the currency then you can sell your license
[20:47] LukeConnell Vandeverre: these are simply the terms and conditions that apply, much like an unlimited internet service provider says Unlimited however conditions apply
[20:48] LukeConnell Vandeverre: what is important here is not the license or the real currency exchange, it is how the service is being presented to the customers
[20:49] LukeConnell Vandeverre: We make it clear to our customers who use the services we provide that it is not real, holds no real value and it is not an investment and does not provide investment opportunities
[20:50] LukeConnell Vandeverre: that is being very candid, open and honest to our customers so that they can enjoy the service, and so that they do not claim that they were misled or tricked into thinking it was anything other than what we say it is

[20:50] Lowell Cremorne: well I’d argue it’s all equally important as most people who decide to invest Linden Dollars with you or anyone else tend to realise it equates to real life money they’ve spent – hence the latest Linden Lab policy on banking. I personally would be surprised if virtual stock exchanges don’t in future get a lot more regulation because there’s no more guarantee of keeping your money than the ATM’s that have just been banned

[20:51] LukeConnell Vandeverre: how?
[20:51] LukeConnell Vandeverre: they invested linden dollars in a game not a real market
[20:51] LukeConnell Vandeverre: it’s not a real investment
[20:52] LukeConnell Vandeverre: the only investment they made was when they paid the fictional currency provider for the licensed right to use that currrency knowing full well the terms of service of that currency provider

[20:52] Lowell Cremorne: Because if I invest $50 000 Lindens I automatically do the maths and realise that equates to X Australian dollars. Given entities like the WSE have no real regulation, there’s no reason you can’t close the WSE tomorrow and I lose my money

[20:52] LukeConnell Vandeverre: and buying fictional currency isn’t an investment it is purchasing game to participate in the fictional economy which is a feature of a product provided by linden lab

[20:53] Lowell Cremorne: which is not the way the majority of people tend to see their investment

[20:53] LukeConnell Vandeverre: No need to speculate on why Linden Lab released their policy other than to go by what they said were the reasons, virtual banks have resulted in the loss of linden dollars from residents in the virtual economy and that has a negative impact on the user experience in their virtual world

[20:54] Lowell Cremorne: Absolutely – so from the audio announcement on the site you’re supportive of that and I assume that if/when LL expand regulation to virtual stock exchanges you’ll be supportive of that?

[20:54] LukeConnell Vandeverre: Hang on, you keep saying invest 50,000 lindens? you mean to participate in the WSE?

[20:55] Lowell Cremorne: Yes – say I chose to invest $50 000 Lindens in purchasing shares via the WSE

[20:56] LukeConnell Vandeverre: If Linden Lab feel that fictional stock exchanges are no longer providing a positive impact and a unique service to residents participating in their virtual economy then they would likely release a new policy and the WSE would close, exactly

[20:57] Lowell Cremorne: Although it’d be nice if instead of a ban they proposed some transparency and regulatory mechanisms to protect potential investors – that’d assist both you and investors

[20:57] LukeConnell Vandeverre: Then by spending L$50,000 lindens on the WSE you would be well aware that the WSE makes it very clear it’s not real and not to be used as a real investment opportunity to make money and that if you do it, then you take it upon yourself to take the risk that you may or may not be able to acquire more linden dollars than you started with and that you may or may not be able to sell the license to use them on the currency exchange
[20:59] LukeConnell Vandeverre: there are no guarantees at all that there will be a buyer for your license to use the fictional currency you control but not own

[21:00] Lowell Cremorne: Of course – I was more interested in the fictionality argument but I think we’ve thrashed that one to death 😉

(I then thanked Luke for his time and stated a story would be run this evening etc)

[21:12] LukeConnell Vandeverre: you’re welcome, btw further to your previous article the Office of Fair Trading/Consumer Affairs/ACCC would only investigate an allegation of false or misleading conduct and the World Stock Exchange makes it very clear to the user that it is not real and we do not promote it as a real investment opportunity.

[21:12] Lowell Cremorne: no probs – will add that to the story
[21:12] Lowell Cremorne: bye

[21:12] LukeConnell Vandeverre: OK bye for now

What are your thoughts – do you invest in such exchanges as purely a fictional game playing exercise?

Update: Nobody Fugazi at Your2ndPlace.com is running a follow-up story with some interesting allegations.
Update 2: Tateru Nino at Massively has also elaborated on the story.
Update 3: Nobody Fugazi has an interview with Arbitrage Wise from WSE competitor SL Capital Exchange on the Linden banking policy.
Update 4: This post pretty much refutes the whole fictionality argument – fascinating reading.
Update 5: SLNN are querying whether there’s legal action underway against WSE.
Update 6: This blog post by a Senior Economist at the Joint Economic Committee, U.S. Congress poses some interesting questions about Linden Lab’s new policy on virtual banking.

Over on Your2ndPlace, Nobody Fugazi has done a story on Second Life’s World Stock Exchange (WSE) and its announcement of an up to 30-day closure. I headed over to WSE myself and sure enough was greeted with this:

Auto Greeter: Hello. Lowell Cremorne Welcome to the WSE. As you all know we are upgrading as part of our launch for the WSE 4.0 platform. This is a huge undertaking and we have now entered a phase of development that requires the WSE to close all trading and transactions for “up to” 30 days. As responsible managers and to ensure stability, security and improved services it is important the WSE fix all existing bugs in the website as part of the upgrade. CEO’s will continue normal reporting and announcements during this period. WSE 4.0 includes a new ATM, improved security and functionality along with a new conditional trading system. All WSE Account Holders will earn a bonus 25% p.a. interest during this process. We ask for your patience and apologise for any inconvenience. Kind Regards, LukeConnell Vandeverre

I’d agree with Fugazi’s view that such a long closure is strange and it’s hard not to tie it in with Linden Lab’s recent warning on third-party financial transactions. WSE has a history of sudden closures and each time they have re-opened for business. Here’s hoping this time is no different. I’d also put in a wish for version 4.0 of the new WSE platform to incorporate a little more transparency.

Update: The Second Life Herald have further coverage of the closure, including one fascinating statement: “Vandeverre stated that one of the new functions of the WSE 4.0 is the ability for shareholders of the WSE to vote on the board of directors based on individuals he nominates.”. Ever heard of a real-life CEO telling shareholders what directors they can vote for? If the quote is accurate, such a move will do nothing to ease concerns over WSE’s lack of transparency.

Massively’s Tateru Nino has written about the legality of virtual stock exchanges, including Second Life’s World Stock Exchange run by Australian Luke Connell.

ASIC is Australia’s financial market watchdog and their view on virtual stock exchanges is that they don’t fall under their purview – but that Fair Trading entities may scrutinise any claims of such markets being touted as only a game. As Tateru states in her piece, “There’s no real difference, of course, in a bank or stock exchange that deals over the Web, over the telephone or in a virtual world”. It’s hard to see the logic in the opposing viewpoint, however it appears that some virtual exchanges have a vested interest in claiming it’s all a game. It’s increasingly appearing that such a claim isn’t even a defence from a legal viewpoint.