Subscribe to this topicForums > General Investment Discussion > Topic: Does proposed Andy Grant RABOND IPO violate LL Interest policy? 02/04/10
| Feb 4th, 16:55 Bogart Beck |
Does proposed Andy Grant RABOND IPO violate LL Interest policy? 02/04/10 | |
I read an interesting post over on ISE today that caused a bit of alarm. It has been my understanding that the "LL Interest Ban" specifically prohibits any activity that provides a guaranteed rate of return on an investment product. I've not talked w/ Andy yet (I'm still at the office) but wanted to get some feedback and commentary from others regarding their take on the proposal as written. I'll check back here when I get home to see what others think. Link to Andy's post provided below; Bo =========================================================== http://www.intlstockexchange.com/punbb/viewpoll.php?pid=13446#p13446 AndyGrant Certified Investor Registered: 2008-02-28 Posts: 1192 Should RABOND IPO be approved?In connection with RA's infrastucture financing (http://www.intlstockexchange.com/displa … aseid=1036), RA shareholders voted for the option to issue companys bonds. link to shareholdervote: http://www.intlstockexchange.com/punbb/ … 414#p13414 Pursuant to ISE listing rules, a vote by the ISE community is necessary in order to list the shareholder-approved intention to issue (non-interest-bearing) bonds. RA indends to issue the following bonds: IPO Price: 94.34 Maturity: 90 days after last IPO bond is sold Amount of bonds to IPO: 1060 (gross proceeds L$ 100,000.00) Payoff: Bonds will be liquidated at maturity at 100.00 L$ / bond, equivalent to an annual ROI of 24%. Risks: In accordance with RA investor rights policy (http://intlstockexchange.com/punbb/view … hp?id=1435) bond holders are the 3rd to claim companys assets in case of bankruptcy/default. (above both direct/CEO loans and equity holders). For details about companys latest financial statement please see: http://www.intlstockexchange.com/displa … aseid=1025 Following the issue of these bonds, based on the january financials, the companys debt-to-equity ratio will increase to: 3.4 to 1 and assets will grow to 583k L$ Use of financing: The bonds aim is to increase the companys liquidity, to help fund the infrastructure. And allow current operations to continue uninterrupted. Please state your vote, or ask any question at your earliest opportunity. Thank you. Last edited by AndyGrant (Today 09:04:52) |
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| Feb 4th, 22:31 Andy Grant |
Re: Does proposed Andy Grant RABOND IPO violate LL Interest policy? 02/04/10
Edited by author Feb 4th, 23:33 |
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| Thanks for raising the concern, i can provide my interpretation of what's beeing and what's not being offered. To start off let's talk about -what is an equity offering, and what is a bond offering: Let's start with an equity offering: An equity offering, is the most speculative one, since equity holders are absoultely last in line to claim a companys assets. To balance out this disadvantage they are at the advatage of having unlimited profit potential. In short the risk is highest here, but also the profit potential is best. A bond offering, is less speculative than an equity offering, because bond holders are creditors and therefore have the right to claim a companys assets before equity holders. Bond holders still risk (just like equity holders) total loss of investment (100%, zero). To balance out this huge advantage bond holders have VS equity holders, bonds have a MAX-PROFIT: A bond will never pay more return than the predefined rate. To put a more practical example, for february RA is estimated to make a profit of 4k L$, equity holders may receive all of the 4k through a divdidend or some of it or even none (as the management sees fit). While bondholders actually care less about the profitability their contract is that they will receive a payment of XX so long as the company has cash+liquidatable assets to pay off their obligation. This is not a deposit account, and there is no return on that deposit that doesnt exist. There is no direct nor guaranteed return, at all. My understanding is that LL didn't ban stocks nor bonds, because neither guarantee any returns. The only difference between the 2, bonds are an expense to equity holders, but therefeore have a max profit potential (but they also have a similar max loss: 100%). With all that being said, if someone can point out exactly where this kind of offering violates LL's policy, i'd be more than happy to adjust the offering. |
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| Feb 4th, 23:12 Bogart Beck |
Re: Does proposed Andy Grant RABOND IPO violate LL Interest policy? 02/04/10
Edited by author Feb 5th, 00:28 |
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| Hey Andy, Please find links to the Official LL Policy Statements below. Here's my concern; Regardless of what you are calling the RABOND product, it appears that the language you've used is in effect promising a "rate of return" or could be construed as such. I'm fairly certain that's SPECIFICALLY what is prohibited by the LL policy. The potential problem lies in the fact that you've packaged it as a term investment with a predefined yield. That's my read on it anyway. You can probably get around the LL policy with some very carefully crafted caveats much like you've done in the above post - I think that could be done in the Prospectus with some wordsmithing and prominent risk disclosure... yada, you get the drill. Not trying to cause you problems, just trying to help keep ALL of us free from any unecessary LL scrutiny - It's met with disasterous results in the past ;-) Bo https://blogs.secondlife.com/community/features/blog/2008/01/08/new-policy-regarding-in-world-banks New Policy Regarding In-World "Banks" Posted by Kend Linden on Jan 8, 2008 6:43:56 PM Please read this if you operate, or have transferred L$ to, an in-world “bank” or financial company. As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy. Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world “banks” defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized. Usually, we don’t step in the middle of Resident-to-Resident conduct – letting Residents decide how to act, live, or play in Second Life. But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.” There is no workable alternative. The so-called banks are not operated, overseen or insured by Linden Lab, nor can we predict which will fail or when. And Linden Lab isn’t, and can’t start acting as, a banking regulator. Some may argue that Residents who deposit L$ with these “banks” must know they’re assuming a big risk – the high interest rates promised aren’t guaranteed, and the banks aren’t overseen by Linden Lab or anyone else. That may be true. But for all of the other reasons we’ve set out above, we can’t let this activity continue. Thus, as we did in the past with gambling, as of January 22, 2008 we will begin removing any virtual ATMs or other objects that facilitate the operation or facilitation of in-world “banking,” i.e., the offering of interest or a rate of return on L$ invested or deposited. We ask that between now and then, those who operate these “banks” settle up on any promises they have made to other Residents and, of course, honor valid withdrawals. After that date, we may sanction those who continue to offer these services with suspension, termination of accounts, and loss of land. We will not apply this policy to companies who submit a registration statement, charter, or other applicable license from a governing regulatory authority, or who are merely conducting marketing or education, but not accepting payments. You may report a violation of this policy through the Help/Report Abuse feature in your Second Life viewer, and follow the instructions given. Answers to FAQs are located here: http://secondlife.com/community/support.php?questionID=4899 http://wiki.secondlife.com/wiki/Linden_Lab_Official:FAQs_on_Policy_Regarding_Inworld_%22Banking%22 |
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| Feb 5th, 05:34 Andy Grant |
Re: Does proposed Andy Grant RABOND IPO violate LL Interest policy? 02/04/10
Edited by author Feb 5th, 06:49 |
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| Hey, thanks again for the feedback, i think i came up with a solution. Here's repost of my "eureka post" from ise :) IPO Price: 100.00 Maturity: 90 days after last IPO bond is sold Amount of bonds to IPO: 1 (i'll buy this one myself) Amount of bonds to create: 1060 (the rest will be auctioned off in open market at whatever price the market is willing to pay) Payback: If RA does not bancrupt, RA will buy back (through a one-time liquidation dividend) at 100.00 L$ / bond. Otherwise RA will be forced to liquidate whatever assets it has to pay the bondholders upto 100.00 L$ / bond. All this contract states is if the company does not go down under that the bonds may be paid back, at = IPO price. If on the other hand the company does go downunder investors would get whatever (if any) assets the company can liquidate. I think this is highly LL friendly. Thoughts ? |
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