When Virtual Banks Fail

Comes now the news that the Eve Intergalactic Bank was a scam. First, what that sentence means, and then, what it means.

EVE-Online is a virtual world with an outer space theme. It allows for nearly unlimited player-on-player conflict, in which winners can often keep quite extensive spoils. It also features a very complicated resource model, with lots of opportunities for extensive investment, manufacture, and trading. It has a system of in-world corporations that function much as real-world ones do: commercial, capitalist ventures. It has a completely permissive attitude towards trading virtual items for real money. And it has a completely permissive attitude towards sharp dealing, player-killing, and even outright scams. Whatever you do in-world is at your own risk.

The Eve Intergalactic Bank was more or less what its name implies: an in-world bank. Players could deposit in-game currency (called ISK) with the EIB, which would pay interest of a few percent a month. That may be high by offline standards, but it’s low for in-world ventures, abductively suggesting low risk. Indeed, the falling value of the ISK versus the dollar (50% or more a year) made the EIB the practical equivalent of treading water. It just beat holding useless ISK yourself and watching them depreciate.

In turn, the EIB promised to loan its funds to promising investment projects. It would take a cut of the profts in exchange for fronting them. Although I’m not quite clear on the details (and, for reasons that may be obvious, neither was the EIB), it sounded as though it was going to act as a genuine debtholder or equity partner, rather than taking any kind of management role. Thus, the EIB was doing what offline banks do—using its deposits to make investments, and profiting from the spread in rates of return between them. Thus, it was acting as a true financial intermediary, greasing the wheels of capitalism and, in effect, helping depositors and entrepreneurs find each other. ISK were going to productive use, and presumably the economy was humming along just a little faster.

Except, as noted above, it was all a scam. Or rather, if it wasn’t one at first, it became one as its principal proprietor, a player whose avatar was named Cally, at some point decided to take the money and run. This being EVE, there wasn’t much anyone could do about it once he made that call. He now has enough wealth to be utterly and absolutely pimped out at all times. (Indeed, it appears that he may be having fun taking out bounties on himself and enjoying the resulting battles.) The players who vouched for the EIB are now coming under some pretty intense scrutiny; some have pointed out that their endorsements were hardly unequivocal, others may be in line to lose a fair amount of credibility.

Okay, so that’s what happened. But I promised to say what it means.

My take is that the EIB came dangerously close to actionable real-world fraud. There could be trouble with real-life banking regulators, there could be criminal fraud prosecutions, and there could be serious trouble with tort suits by disgruntled investors. I don’t know that any of these would succeed, but it does not strike me as out of the question. Keep in mind that had the EIB existed in the United States and dealt in U.S. dollars, what Cally did would have been illegal six ways from Sunday. He took investors’ money with promises of a generous return and pocketed it.

The problem here is that EVE Online, as fascinating a place as it may be, has set up its world to send some very mixed signals. Their absolutely hands-off attitude towards player conflict, on the one hand, encourages one to think of it as “just a game.” All of the player-versus-player combat, all of the fantastic betrayals and scams, all of the sudden reverses—these are the elements of an exciting and unpredictable game. It’s like Diplomacy writ large and in real time with laser cannons. For those dedicated enough to master the world’s steep learning curve and the grind of its resource extraction system, it sounds like a real rush of intelligent adrenaline. We’re talking about a serious contest of cunning here. Lots of fun.

On the other hand, EVE Online’s absolutely hands-off attitude towards real-money tradig and what we might call virtual property undercuts this first tendency. This attitude also ecourages players to regard EVE Online as an exciting place. Now, you can make good money if you play your cards and cruisers right. You can also throw a few offline dollars in to get yourself up to a nice stake quickly; you can take advantage of the liquid markets to buy and sell your holdings expeditiously. All of these features add further economic excitement to the world, but they also bind EVE Online more closely to the offline world. They make it more reasonable to regard ISK as essentially interchangeable with offline dollars. And if the EIB was defrauding people of something with a demonstrable offline value, well, that’s the the “thing of value” element of fraud.

The main remaining defense is that the investors all understood that the EIB was “part of the game.” This defense seems intuitively reasonable when we think about a common bit of space combat or stab-in-the-back between asteroid miners. It’s why we don’t look at EVE Online and automatically immediately see gambling and nothing but. But the EIB was advertised on its on (now defunct) web site and on out-of-world forums.

Yes, its direct investors had to invest in-world. But the EIB flirted awfully closely with the prospect that one of them might not have understood the implicit “it’s a game” disclaimer, and been quite reasonable in so doing. These claims come awfully close to promises directed at investors not familiar enough with EVE Online to understand the dog-eat-dog context; they also come awfully close to promises that notwithstanding the dog-eat-dog context, the EIB actually is a secure investment. Either way, the EIB and EIB-like schemes are all but crying out to be judged by offline rules, rather than in-world ones.

This isn’t just a matter of EVE Online’s attitudes. The stronger a system of virtual property becomes, the shakier a defense based on “it’s just a game”-itude becomes. If you think that players have enforceable offline rights in their virtual items, then you are saying that they can turn to the real-world legal system if those items are confiscated or stolen. Why not let them turn to the real-world legal system if those items are taken not by hacking or by force but by fraud? That line of reasoning will be attractive to the courts and regulators that will be asked to consider such questions. With legal rights come legal duties; virtual property is not an unmixed blessing for players.

In fact, my wild hand-wavy prediction is that this is the route by which we will actually see virtual property rights develop in the West. The disputes will not be the ones between players and companies; for the moment, EULAs have the security of contract. Instead, player-to-player disputes over deals gone bad will require courts to sort out the relative rights to virtual wealth as between different players. Here, a EULA disclaimer that the company owns everything and the players own nothing is not the end of the matter. If I take your Bone Crusher by pointing a gun at you in the offline world and forcing you to log into your account and give it to me, it’s a good bet that I’m going to prison and you’re getting your Bone Crusher back. The path from there to restoring virtaul wealth taken by fraud is not a long one, and neither is the path to ordering players to carry out offline contracts involving in-world items. True, there are some difficult doctrinal hurdles along the way, but nothing necessarily insurmountable.

Virtual acts increasingly have offline consequences—at least in those worlds with permeable borders. I would not like to be planning the next masive EVE Onine scam, or the one after it, or the one after that. For now the comforting strains of “it’s just a game” are paying, but some day, some day soon, the weasel will pop.

I’m not quite sure that this is the case.

Remember that a large part of the appeal of Eve, and of games like Eve, is the freedom. We have less and less freedom in the real world and so we seek it in virtual realities. Allowing the tendrils of real-world law to creep into the virtual realm decreases the freedom available there and therefore decreases the appeal.

I suspect that there are contractual and EULA-related measures that companies could and will take to protect their players from the intrusive safety of the Nanny State.

Oh, definitely. That’s what I’m thinking about in my research—what effect contractual terms imposed by companies might have on legal relations between players.

My sense is that Jack Balkin is right, and offline legal systems will stay further away where companies have been serious about pulling up the drawbridge and insisting that their worlds not be tied into the offline one. My hunch is that taking a harder line against real-money trading would be a significant step in that direction. In the end, though, I don’t know that any world at all, no matter how scrupulously it acts, can keep the law out entirely.

yeah I think you’re correct. The problem I believe is not so much the fraud per se, which is buyer beware, it’s the fact that CCP allows it to happen on their forums. People get investors via the boards, mixing real game plays with fraudulent game play. Forums that CCP also have paid staff to moderate and on which real commerce occurs. Eve does have game-time cards that players can purchase and sell in-game for in-game money legally (by CCP). Overall I am worried by CCP’s laissez faire attitude on frauds on out-of-game tools principally because it blurs any lines of the game’s boundaries. It makes it sort of difficult to understand how they can be against RMT’s in their game, since that’s just another means of playing the game (gaining the means for advancement). RMT’s between players to me is acceptable, so why not allow them if they allow scams?