Ok....I have been barking about this thing for a few days now and here it is.....the vultures are on the prowl BUT the amount of dead bodies for them to feed on is diminishing. This is for one of two reasons....enhanced due diligence and loss of faith in the virtual market.
Which one of those factors is reigning true? And the winner is...... DUE DILIGENCE....
While a faithful few are saying "to hell" with the virtual exchange many people are starting to do more research. Just like Linden Labs abandonment of its residents, the stock exchanges are abandoning its investors. Is it because they don't care? Doubtful. It is a numbers game with money being the vice grip but in plain and simple terms, exchanges can't afford to bail out investors and that is not the purpose of the platform.
So then, what is the virtual stock exchange? A middle man to trade on and nothing more. The exchanges only responsibility to the market is to make sure that the platform is operational and that they have done the due diligence to allow a company to list. Outside of that, it's not their problem, BUT, we as investors are trying to make it such.
It's the beginning of a bankruptcy waiting to happen if this is the case.....Now I know there are a few in the crowd with a noose ready to string me up so let me step on the other side of this soap box for a moment.
Exchanges usually have a good idea of patterns that don't make sense such as unusual trading days and tremendous price fluxes and day trading from the CEO. Ding Ding Ding! Red flag! Something is wrong here! But, going back to the soap box, what can the exchange do AFTER the IPO has been completed and the money is spent? Is there anything that can be done.....at this point....no....and as much as we as investors want them to do something, they can't.
So....here we are...out of our investment and wanting our money back. Considering RL legal action can open the doors for ALL of us to be fined for trading securities illegally, that is not the way to go.....freezing someone bank account at another institution opens up a whole other door of fraud and privacy issues with the bank to their client...so what the hell do we do?
Here is my suggestion....Linden Labs will only do something when they are bombarded to do it. That is evident from my past experiences. Blanket the support tickets with abuse reports over and over and over again and EVERYONE do it on the same person. Linden Labs has to open their eyes one day and realize their little BETA TEST has become a platform to swindle people from hundreds of thousands of dollars.
Will they say shut down exchanges? Heck no...it's a viable marketing tool for them if they play right in the sandbox. Just like the petition on the Land Bots, maybe we can do something here that will at least ask for some help.
I personally went to LL to start a mentoring group sponsored by LL for the financial sector alone and have been put on the back burner. My voice is loud but I am getting hoarse. Can we all agree to force the hand here?
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Lindsay, well said and I am glad you started your blog. I will personally state that Lindsay and I are usually on the wrong sides of things! I don’t think we have ever agreed on anything in SL. However in this case, I do agree with you 100%, but I do not think that LL is really the answer, unless we can give them a technical problem to solve. If they could set up a “Corporate Bot” or some sort of independent avatar duplicate id system, then we could probably recover.
The problem in my mind is twofold:
1) SL "Corporations" do not need to heed to any RL or SL tax laws, therefore there are no "Articles of Incorporation", no tax ID, no accountability, etc.
2) There is no real "treasury stock". The CEO of a company always holds the majority of stock. This is very rare in RL corporations, and in my opinion not only enables fraud, but invites it. Who can resist a sudden increase of millions of lindens in their control, with no oversight? I think even the most honest person would be very tempted to cut and run! But I'm a cynic as well as a skeptic.
Anyway, I don’t think there is any easy solution to this. However I would like to suggest a couple for discussion:
1) Before a company can list in SL, they must be incorporated in RL. The verification would be their Corporate Tax ID. The downside to this idea is that it would immediately invite SEC regulation into SL which we don’t want or need! This is a game. We need to keep it as a game without getting ripped off! So I would vote no to this idea.
2) An SL exchange writes its own definition of what a corporate entity looks like in SL, and everyone who wants to trade on that exchange agrees to that definition, no questions asked, no whining later if an investment goes south! (Please read on before judging the last statement!). Now we have all seen the TOS of various exchanges, and they are enough to put a lawyer to sleep, and they don't really say anything. If I were starting an exchange I would put forth the following rules:
a. All shares for the company will be placed in a holding account and will be considered treasury for that corporation. The holding account is owned by the CEO, the board of directors (minimum 4, (More on this point later)) and an exchange officer.
b. Any IPO money will go to this holding account owned jointly by the above.
c. For the initial IPO only, the CEO of the company would immediately be granted 5% of the treasury stock at no cost. The rest of the stock, except for that offered for IPO, will remain in the holding account as treasury stock. If the CEO wishes to increase his/her stake in the company, they pay the IPO price along with everyone else, for the stock publicly available, not the treasury. For example, let’s say the total amount of stock for the company is 10Million shares and 5 million shares are being offered for the IPO. The CEO would automatically own 500,000 shares (total of all shares). So 5 Million are in IPO, and 4.50 Million are owned by treasury. If I as CEO wanted to increase my stake to 10%, then I would pay 500,000Lindens of my own money (at an IPO of 1L/share) for another 500,000 shares. This enables true shareholder ownership of the company, so if the CEO and board aren’t doing their job, they can get kicked out by the majority. The CEO no longer holds the majority of stock! (This has always bothered me about the SL model of the corporation, that the CEO controls everything!) It also shows true profits for the corporation and not the CEO when dividends are paid, since dividends would be paid on all 10Million shares. Therefore if the CEO decides to “run away” the corporation stands because it has its own equity. Also this model gives the CEO the option of really leaving SL while still making a profit from his original shares, without screwing everybody else! If a CEO just can’t handle the pressure or something in RL comes up, then he/she can resign from the board, and the company carries on, and the CEO continues making money (assuming that he/she didn’t sell their shares).
d. The funds will be distributed in the following manner:
i) As proposed in the Prospectus to the parties outlined in the prospectus only (This means the prospectus will need a lot more detail. If there is a deviation from the prospectus, then it must be taken to a vote from a majority of shareholders.
ii) Any unforeseen expenses that need to be met immediately (e.g. LL’s sudden enforcement of the VAT), to be paid immediately and then shareholders notified immediately. (Something this major may have to be taken directly out of treasury)
The funds can only be released from the holding account when all board members, the CEO, and the exchange official, provide a unique personal password simultaneously. (This is one of the technical things we may require from LL. Kind of like releasing Nuclear weapons for a launch, the launch officers have to turn their keys simultaneously after receiving authorization for launch).
I apologize for the long winded post, but I also promised one more point regarding 2.b above.
I had proposed something similar to this a couple of weeks ago in one of the forums on SLCAPEX and it was pointed out to me in no uncertain terms, and I happen to agree with, “the board of directors and the exchange official could all be the same person!”. Rule 144 wouldn’t even apply because as Savvy Moore pointed out, very correctly, that the person could be using both broadband and DSL, two different ports!
I’m sorry I do not have a solution to that dilemma (except for the simultaneous “launch” thought offered above, which I am not sure is really very realistic), unless that is the technical problem that we could take to LL, that is, do they have a routine or an object or something that we could use in a script to verify Alts. NOT TO PUBLICISE THEM, just to verify that the exchange official, the board of directors, and the CEO are all unique alts. The script could be incorporated into an exchange verification system. If LL can do this for us, then I think we can go a long way to establishing some true “transparency” in the markets.
Once again I apologize for the length of this. I hope I didn’t put anyone to sleep.
No Arnaud, I am laying down to go to sleep but not sleep yet. I do agree on actually all your points here. It does make it more fluid.
As far as the unlock, I would suggest a phone number verification that would call each person simultaneously with an automated system requiring them to enter an authentication password that they would recieve in the mail.
The CEO would do their verification first, thus initiating the others within 1 hour so everyone would have to communicate. A failed authentication would result in IPO declination until authenticated. This would not have to be done by SL but would take some sophistication definitely and will cost but in the long run will be very fruitful. What do you think?
I think that is a good idea, but I think an hour is too long a time since 1 person with 5 alts could easily respond in an hour. I think that the idea has potential though.
Well they dont have an hour to respond but the call would go out in an hour and the CEO would have to reverify along with the other 5 people. The second verification would expire in 30 seconds and would be done at the exact same time. Any failure point in the verification would be a red flag. Voice and keycode verification required.
Might just work. I would like to hear what Xavier says about that. By the way I attributed a quote incorrectly, it was not Savvy Moyer, it was Xavier Mohr who pointed out the fallacy in Rule 144.
In either case I blew the last name! lol! Sorry to both for misquoting!.
I would also like to add a comment about the dispersal of funds. I think that the CEO should be allowed a sort of "petty cash" fund, somewhere around 100K linden or so, to take care of day to day business, R&D, etc., otherwise the model would get a little to bureaucratic.
Agreed but even 100k is a bit much I think. I mean...I keep a maximum of 5k in my avatar at all times and that has lasted me weeks so I am not sure what the CEO needs that they need 100k for petty cash....
30 seconds to respond to a phone call & put in a password? It takes about 15-20 seconds for me to even answer my phone.. It's not right beside my computer :p
I rather like the points behind the initial blog, they're all true... Sadly.
As for the post bigger than the blog... The only thing I liked out of the entire thing is that the corporate head doesn't get the ability to just sell off shares at random for free money. This is one of the things that rather irked me when I started investing... I noticed all the companies were releasing something like 1% of their shares, then turning around and only offering something like 20% of their profits as a dividend. So that's... 1% of 20% going to any shareholders, and then the CEO can just sell out shares as they please.
So the only part I don't agree with, is them getting ANY non treasury shares to start with. And why should they? With the example, at an IPO price of 1/share, that's basically giving them a free 500k lindens... They still earn whatever they're going to earn in their treasury, why give the option to sell at all? Maybe as a secondary offering, but that's it.
Now, as for the idea of share holders owning the company? Nuhuh, no way, don't even dream on it.
There's basically no way you can enforce that idea... Except to delist me? Lets say I make a company selling pet objects... Someone buys up more shares in the company than I own. So the exchange tells me I have to hand it over to them? I'm going to tell them to kindly bend over and suckle my phalli as I make plans to pay off, or not, my investors... Following that, I'll be delisted, by my hand or theirs. No big deal, the company exists, and if I'm nice to my investors after being removed, chances are, I'll be better off for it.
Investors buy a dividend, not the company... It works well that way. There aught and be a mandatory dividend policy however, as that's about 1/2 of what investors are interested in... And it's that which sets the bar for what a company is worth.
I would say that a mandatory dividend in SL would be a good way to corner the market or the versus, a mandatory buy back if not in a dividend period but how could exchanges enforce that?
How can they enforce anything, really? All you have is reputation and continued service (listing) with the board. If other exchanges will pick up a rogue listing with legitimate reasons to be kicked off, well... Who's problem is it then?
What's the honest point in investing in a company that doesn't plan to ultimately pay out to it's investors at all? They become a cancer at that point.
Yeah, you made my brain pause on that one. I have on idea how they could enforce it but a company that doesn't pay dividends or at least have an aggressive schedule to do so is not a good company for a short term investment, which is the basis of the SL market and may not be for a long term investment as you basically just gave money to someone to start a business with no hopes of any gain from it. Let me think on this one more.
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