Earlier this year, I did an entry looking at how the virtual world of Massively-Multiplayer Online Role-Playing Games needs regulation. Obviously police are waking up to this with revelations about the arrest of a Dutch teenager for stealing virtual furniture in a virtual world.

But problems with law enforcement in this area remain. How, for example, does one distinguish between true game activity and the promotion of investment opportunities. In virtual worlds, it's not that easy to draw clear distinctions because player-inhabitants might consider that their investments in virtual world securities
have mixed characteristics of gaming and investment. So where does one draw the line?

University of Miami School of Law professor Caroline Bradley offers some interesting insights in her paper Gaming the system: virtual worlds and the securities markets.

Basically, her argument is that under current rules some virtual world financial transactions are transactions in securities, and are therefore subject to registration requirements and fraud liability under the securities laws. What's needed though, she says, is an exemption regime to distinguish between game activity with a financial theme and scams. She writes:

She makes the excellent point that something needs to be done because organized financial markets these days are virtual rather than real.

"In contrast to markets for physical goods, markets for financial assets are markets in rights. In stock markets traders buy and sell rights to share in the profits of entities which exist as a matter of law, but have no physical existence.147 It is often not possible to define with any certainty what it is that a particular corporation does. And what corporations do in the 21st century is very different from the classic model of making widgets. Whereas investors originally looked for a return on their investment in a voyage to the East Indies, or planned to share in the fees for use of a bridge, they now frequently invest in conglomerate enterprises which engage in a diverse range of activities. Very many corporations' businesses involve the production and sale of entertainment, information, and services which are intangible, although they may be very profitable. Even for non-financial corporations, financial transactions may be a significant source of revenue. Markets for derivative financial instruments are even further removed from the physical domain. Rather than buying shares in a company, investors may decide to buy options to acquire those shares at a particular price at a particular time in the future, or they may transact in futures, which require them to buy or sell the security at a fixed price at a particular time in the future. Financial institutions develop securities which are described as 'synthetic'. "

Clearly, this issue is not going away and something will need to be done. Sooner rather than later.