Get Ready for Virtual Vice

For those tired with real life, Second Life can be a welcome distraction. But for many others, it's become a path to profit.

No kidding. As of October, analysts were estimating that Second Life's virtual economy -- which operates on so-called "Linden Dollars," named after game creator Linden Labs, and which can be exchanged for real currency -- was generating a $150 million gross domestic product. That caught the attention of the IRS, which is still mulling the tax implications.

But now press reports suggest that some of the money flowing into and out of Second Life is being obtained, shall we say, less than legally. And the feds, once again, are poking around the back alleyways where digital poker, blackjack, and slots are making, and ruining, second lives.

Once you get past the lunacy of watching a digital burnout endlessly cajole a digital slot machine, it's easy to understand why the FBI might be interested in how Second Life's Steve Wynn wannabes are making the reported $1,500 a month they're taking in.

The feds have been after Web gamblers for months now. Arrests of executives from offshore gambling sites have become common, for example.

Then there's the Unlawful Internet Gambling Enforcement Act, which came to the aid of Sin City operators like Harrah's Entertainment (NYSE: HET  ) , Boyd Gaming (NYSE: BYD  ) , and MGM Mirage (NYSE: MGM  ) by gutting Web gambling payment processors such as the UK's Neteller.

But is gambling with digital monopoly money a crime? Linden Labs can't be sure. "It's not always clear to us whether a 3-D simulation of a casino is the same thing as a casino, legally speaking, and it's not clear to the law enforcement authorities we have asked," Vice President for Business Affairs Ginsu Yoon told Reuters in an interview. He also confirmed that FBI investigators had spent time patrolling some of the seedier areas of Second Life.

Don't be surprised if raids are next. Money is still money, after all. So long as the feds aren't getting their cut in the digital world, Virtual Vice should remain a very real-world operation.

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Fool contributor Tim Beyers, who is a regular contributor to the Rule Breakers team, owned shares of Neteller at the time of publication. The Motley Fool's disclosure policy says that pocket aces are the most overrated hand in hold 'em poker.


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