The recent collapse of Ginko Financial, a "virtual investment bank" in Second Life, has spurred calls for more oversight, transparency and accountability, especially when it comes to business practices in the metaverse.

Last week, Ginko Financial – an unregulated bank that promised investors astronomical returns (in excess of 40 percent) and was run by a faceless owner whose identity is still a mystery – announced it would no longer exist as a financial entity.

The declared insolvency meant the bank would be unable to repay approximately 200,000,000 Lindens (U.S. $750,000) to Second Life residents who had invested their money with the bank over the course of its three and a half years of existence.

"You have to remember, there's not a lot of places to put your money in Second Life," said Benjamin Duranske, a lawyer who publishes Virtually Blind, a blog that chronicles virtual laws and legal issues that impact worlds like Second Life. "When you have disposable income and a bank that's promising a 60 percent return on deposits, that alluring – especially if it works for a while."

Quickly following this news, a tidal wave of backlash took shape from thousands of angry Second Lifers in SL forums.

Yet in many ways, the undoing of Ginko and the collective loss of more than 750,000 very real U.S. dollars is only the latest event hammering home the fact that the lawlessness of the virtual land has its drawbacks. Indeed, after Linden Lab, the owner and operator of Second Life, invited the FBI to investigate casino activity, the company subsequently instituted a ban on all gambling earlier this month.

On Tuesday, Linden Lab itself issued a statement trying to clarify its stance on regulations and Second Life's virtual economy.

"Linden Lab does not intend to recreate or subvert real-world laws in any way," the statement says. "We caution our residents to be wary of anyone offering extremely high interest rates at no risk, either in the real world or in Second Life – if it sounds too good to be true, it probably is."

The response was timely, considering Second Life currently has 20 to 30 banks that operate essentially the same way Ginko did. That fact, plus the large losses associated with Ginko, has led to a growing call for even more transparency and regulation among SL residents.

Duranske is at the forefront of the movement. An intellectual property lawyer who's taking time off from his practice to work on a book about virtual law, he was one of the first people to jump on the shady business dealings at Ginko Financial more than two months ago. Indeed, his blog has one of the most comprehensive accounts of Ginko's downfall.

Duranske claims he's personally talked with a few SL residents who have lost as much as $10,000 in the Ginko scheme, but estimates that the majority lost a more moderate amount–somewhere in the range of $50 to $100.

"A lot of people forget, Second Life is governed by U.S. law and the laws of California," Duranske explained. "It just so happens that these laws haven't been enforced."

But that's about to change. Duranske says because Ginko has received so much press lately, the bank, as well as others, will inevitably become an issue that Linden Lab will have to tackle. That either means self-regulation or more federal intervention.

He's hoping it won't come to the latter.

Robert Bloomfield, an accounting professor at Cornell University, is of the same mind. Bloomfield says the collapse of Ginko and the recent closing of casinos, among other incidents of alleged fraud, are shocks to participants in the Second Life financial sector.

That said, Bloomfield believes residents are already responding by creating a variety of oversight institutions of their own, including companies that insure against fraud and homegrown regulatory institutions like the Second Life Exchange Commission, which is modeling itself on the SEC.

"It will be very interesting to see which organizations survive (if any), and how they reduce the risk of fraud," he said in an e-mail.

Bloomfield admits he's getting in on the act on a personal level and has forged an ongoing agreement with two Second Life-based stock exchanges, the International Stock Exchange and the SL Capital Exchange (formerly AVIX) that will provide him with comprehensive data on trading histories for all listed firms.

He expects to publish analyses of that data in the near future and says such information could very well be another important step toward transparency.

In the end, Bloomflield says SL's financial and business sector can teach us a lot about the nature of regulation and oversight. Even with the unfortunate case of Ginko, he still believes the intervention of real-world regulation is remote.

"I am really hoping that RL (real life) regulation does not come to SL because right now SL has the chance to sort out what type of oversight and regulation it wants," Bloomfield said. "If the RL authorities or Linden Lab do start meddling with business affairs, it could ruin a golden opportunity for real innovation and creativity, a chance to recreate a world in a new image."