Gaming the System: Virtual Worlds and the Securities Markets

Abstract

IPOs and stock exchanges in virtual worlds such as Second Life raise a number of issues for real world financial regulators as well as for player-inhabitants of virtual worlds and academic researchers who focus on virtual worlds. The paper argues that under current rules some virtual world financial transactions constitute transactions in securities, and are therefore subject to registration requirements and fraud liability under the securities laws. Treating this virtual financial activity as only an aspect of the game would risk encouraging fraud. Thus an exemption regime would be desirable to distinguish between game activity with a financial theme and scams. Beyond this technical question the paper raises questions for future research about whether and how virtual world financial activity may affect players' expectations and behavior in real world financial markets.