Publicly Traded Novel?
Novelist Tao Lin has invented a provocative new way for artists to sell out.
I am offering 60% of the U.S. royalties of my second novel to “the public”.
I am selling 6 shares (of 10% of the U.S. royalties of my second novel) for $2000 per share.
For each share you own you will receive 10% of the U.S. royalties of my second novel.
This includes all U.S. serial, reprint, textbook, and film (and other performance) royalties.
Shareholders will receive checks (and copies of the royalty statement from my publisher) in the mail every 6 months after the book’s publication (probably Fall, 2009 or Spring 2010). Shares can be resold at any price at any time, I will facilitate trading and promote it on my blog if that is what a shareholder wants. I accept Paypal.
Apparently he’s sold all but one of the shares so far. He’s managed to get a $12,000 advance on his next book without even having to pitch a publisher. He’ll also have some folks out there pimping the book when it does come out, since they’ll have a financial incentive to do so. I don’t know how many artists would be clever (or ballsy) enough to try this, but I hope this isn’t the last time we see someone attempt this model. Financial risk and uncertainty is a huge problem for artists, and this amounts to a hedging mechanism.
Tags: literature, new models
What he’s done is in violation of SEC rules. You can’t offer shares in a nonesxistent corporation to the general public without first going through the admittedly cumbersome process of filing the proper documents and making sure that you make the offer on paper ONLY to “qualified investors.”
As you will see from going on the Freakonomics blog or Mr. Lin’s own post’s comments, this is a young man whose parents have been called by the SEC “securities fraud recividists” and who fled the country facing an SEC judgment that they disgorge the $1.7 million from the investors they stole from by using lies, money laundering, and outright fraud. Mr. Lin’s father served time in federal prison after being found guilty of fraud by a Brooklyn federal jury in December 2002.
Really, Adam, it would behoove you to contact Fractured Atlas’s legal advisers before touting a scheme that is risky to investors, possibly totally fraudulent and certainly in violation of current federal securities investigations.
Mr. Lin, as you will see if you check on him, is an admitted shoplifter and vandal who has a long history of having a reputation as a bad actor in the publishing world.
You are one of the most intelligent men in the arts I know, and I am sorry to see that you have apparently fallen for this scam artist’s self-serving scheme.
A complaint has been filed with the SEC regarding this matter, including in it Melville House, Mr. Lin’s publisher, who has a contract for the novel in question. He, in fact, has gone behind their back to sell shares in his royalties paid for them. Thus he has subjected them (with the firm’s assumed deeper pockets - if Mr. Lin is this desperate for money, he is obviously judgment-proof) to liability in this matter.
Rosalie -
Let’s keep some perspective here. I’m not “touting” anything, merely pointing out what appeared to be an interesting and creative financial model for an artist. I don’t know anything about Tao Lin personally and have no way of knowing whether the accusations in those blog comments are true. I’m a little uncomfortable with some of the “guilt by association” that seems to be taking place, but it may be entirely valid for all I know.
Regardless, even if it turns out that this guy is a complete crook (which would be unfortunate), I maintain that it’s fundamentally an idea worth exploring further, with the appropriate legal and financial guidance, of course. We desperately need new models for finance and capitalization in the arts and there’s an intriguing nugget in Tao Lin’s concept.
One of the major drawbacks to this kind of financing is the extremely high transactional costs. These financings cannot be done without SEC filings which require a lot of attorney expertise and time. It is very unlikely an attorney would do this labor intensive work pro bono even an artist- loving lawyer like me. An attorney faces high malpractice risks in this area and pays high malpractice premiums if practicing in this area. So financially limited artists would have trouble getting this off the ground. These would also be risky securities so attracting investors might be too tough to go through the process…which likely explains why this type of venture is almost unheard of…Then if the venture fails there is the cost of defending an investor class action suit.
@Kathleen
That’s definitely an issue. But I wonder if there’s a way to a) get some economies of scale and b) diversify the risk associated with any individual artist. I’m thinking something akin to a mutual fund…
Hi Adam, back again on this one. I do have one idea, which I don’t think has been tested in the nonprofit world in general yet. There is a new type of low profit company now available in Vermont, the L3C. I am in the process of writing a paper on the applicability of this concept to the arts. It’s kind of on the track of your mutual fund idea. Here’s the general idea: Group of artists (or arts foundation) form L3C (a VT low profit limited liability company). Then seek funding from a nonprofit foundation (yes the foundation can do this without being hit with an excise tax, it’s the whole point of the L3C). Then, seek other investors who are able to reduce their overall investment risk (because the nonprofit foundation is giving money as the “seed” investor accepting the chance, as with any grant, that there may be 0% return for the foundation), but the for-profit investors get the upside if the the venture is successful. The investments are in tranches. I’ll give you more details in my paper in a few weeks. All of this is to say: yes, I think you are right, it is worthwhile seeking other funding options for artists — something in between the historically available models of nonprofit or for-profit “industry” model (i.e, publishing companies, big movie companies, etc.). I still think the L3C might present some of the same securities issues, but it will also likely offer the economies of scale you suggest and perhaps the foundation investor can fund the transaction costs associated with any required SEC filings. There is a good chance, also, that there would be exemption from SEC filings, since the main for-profit investors would be sophisticated investors….
Kathleen,
I’m a huge fan of the L3C concept, so I love that you thought to suggest it. We’re actually exploring forming an L3C (for purposes wholly unrelated to the topic of this discussion) here at Fractured Atlas, so I’d be eager to read your paper when it comes out.