Midas Bank Insolvent - Trouble On The WSE
Writing by Green Guy on Sunday, 25 of November , 2007 at 4:27 pm
L$ Spacebuck banking risks get real - liquidity crisis spills over to stock exchange
by Jessica Holyoke
The Midas Bank touches insolvency - creates WSE stock ripples
As suggested in the comments on the SL Crime Wave! - L$3 Million Bank Heist!!! story, Midas Bank is another bank facing insolvency.ÂÂ
Mr. Midas Commons owns Midas Bank. He also ran Empire Funds, one of the last known holdings of Ginko Financial. Midas Bank reported 0.10% daily interest on deposits, which places it in the bottom of the Outlander Bank Survey of daily bank rates. Back in February of 2007, Midas Bank was described as being primarily invested in gambling and casinos, but weathered the gambling ban for a time. The deposits were listed as being re-invested in loans, capital ventures and WSE and AVIX investments. As of November 2nd, Midas Bank claimed L$8 million in deposits.
While there have been some concern about Midas Bank’s financials, no public signs of trouble occurred until November 2nd. Midas Commons released a notecard stating that an interest payment that was due on Hope Capital Bonds (HCB) was not paid. Midas reported having L$3.5 million invested in HCB. The Second Life Exchange Commission reports that L$650,000 was owed to Midas Bank as the interest payment on their HCB holdings.  The WSE reported on October 16th that there would be no interest payment on HCB as scheduled in early November. Midas Bank contacted the WSE stating that there would be liquidity problems if the interest payment was not paid as promised.
At this self-reporting of liquidity problems, and the previous two weeks of Midas Bank ATM problems, the WSE and LukeConnell Vanderverre determined that Midas bank was insolvent or unable to pay its depositors or bond holders. The WSE de-listed Midas Group High Yield Bonds, Midas Group Financials and Midas Financial Company, and seized the HCB owned by Midas group and any lindens held in Our Bank, the WSE deposit bank. The WSE converted the shareholders and bond holders into mutual fund holders in the WSE Traders Fund (WTF). The WSE also requested that Midas Bank turn over all other assets and the names of depositors in Midas Bank so that they may recover from the insolvency.
WSE virtual stock exchange
Midas Commons at a bank depositor meeting stated that if WSE would make good on their payments owed, then Midas Bank could give all depositors 80 percent back on what they are owed. The statement referred to investors in the bank, not necessarily bond holders and stock holders. Midas Bank states that the WSE owes L$2.1 million in total payments, without saying from what source are those payments. The WTF conversion found one investor in the stock transformed from a L$200 portfolio value to about L$3.53.ÂÂ
After the de-listing of all Midas holdings and the conversion of the stock and bond holders to WTF traders, the Second Life Exchange Commission stepped in. While not explaining why L$650,000 should take away the liquidity of a L$8 million deposit bank, the SLEC accused the WSE of stealing Midas’ assets. The SLEC gave an ultimatum on November 12th of 48 hours to pay out the interest due on HCB. If the WSE did not pay the interest due, they gave the other companies listed on the WSE one week to de-list from the WSE and to re-list someplace else and for other shareholders of HCL to sell off their stocks. The implication here is that the SLEC would publicize anyone’s failure to de-list from a dishonest or unethical exchange. While no company is reportedly de-listing from the WSE, some analysts report that trading has slowed down, either due to the WSE’s actions or the current American holidays.  The WSE trading volume for the last 7 days show a one day spike of 4.8 million shares traded and then trading falling around 1.7 million shares or less.
the SLEC has stepped in
The oddity of having a debtor suddenly seize the assets of the creditor after the debtor has been asked to pay has not gone unnoticed. Additionally, the levels of money owed and amount seized may lead this controversy to be the first litigated SL financial case in a RL court. There have been legal investigations by Midas Bank into what to do next against WSE.
Sources: SL CAPEX Forums, Notecards provided by Midas Bank and the SLEC, in world interviews, Outlander Bank Survey and the Second Life Herald Archives - where Jimbo Quality sometimes goes to sleep
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