Unusual Public Offering
August 2, 2008 8:50 PM   Subscribe

When a young company is in need of some dough, they often will issue an IPO. But what if, instead of a company, an author decides to sell shares of his book royalties? Tao Lin is doing exactly that.

Currently he is selling 6 shares (equal to 60% of his royalties) for $2,000 per share. (A steep price, given that the First National Bank of Alaska is trading around the same.)
posted by thatbrunette (45 comments total) 5 users marked this as a favorite
Not sure if anybody's ever read any Tao Lin, but dude's either a complete nut or very innovative. That said, I actually enjoyed reading Eeeee Eee Eeee. I think that selling royalties shares actually kind of makes sense; it's not unlike signing equitable investors in a film production.
posted by jabberjaw at 9:10 PM on August 2, 2008 [1 favorite]

2,000 usd for 10% of "all U.S. serial, reprint, textbook, and film (and other performance) royalties" doesn't sound that steep to me.

I mean, his other books on Amazon seem to do well, with good reviews and sales rank above 50,000, he's making some noise on the internet (and this little gimmick is sure to make a lot more noise) and his reasoning isn't completely devoid of sanity. Hell, it could actually be a good investment. I hope someone with actual experience in the field chimes in later.

I mean, it lacks the sophistication of David Bowie's Bonds, but the idea itself sounds interesting.
posted by Cobalt at 9:26 PM on August 2, 2008

I think that selling royalties shares actually kind of makes sense; it's not unlike signing equitable investors in a film production.

It would make sense if the book actually made any money. So many, many books don't and go out of print within a year or two.
posted by orange swan at 9:28 PM on August 2, 2008

Not sure if anybody's ever read any Tao Lin, but dude's either a complete nut or very innovative.

My vote is for the latter. There is some speculation about whether Tao Lin actually "exists," which is both perfectly warranted and perfectly irrelevant; his coyote persona asks that we treat him as a concept rather than an actual person, and I am happy to oblige. His face is not a face, it is a bowl of discarnate vegan porridge! Long may he live.
posted by Powerful Religious Baby at 9:46 PM on August 2, 2008

The strategy itself kind of takes that into account - investors that are looking to at least break even will have incentive to push for the book's success, by way of word-of-mouth, blog posts, positive reviews, etc.

Not saying it would necessarily work, but it sounds good in theory.
posted by Donnie VandenBos at 9:47 PM on August 2, 2008

Actually, the caveat that bothers me the most is that it's only administered and managed by him. What's to say he'll have he discipline and diligence to continue sending me cheques for the rest of the copyright (read: forever)?

But if someone were to start a trust that 'invests' in aspiring authors and offer a 'mutual fund' style investment in the collective royalty basket of the authors, I would seriously consider that investment. Lobby the cultural minister to throw in a partial tax break on top.

Now if someone like Margaret Atwood or Haruki Murakami offered shares in their royalties, that'll be quite tempting even self-administered.
posted by tksh at 10:10 PM on August 2, 2008

Depends, tksh. Would Atwood be offering shares based on quality or quantity? If the former, great! Huge loss, tax writeoff. If the latter, gains. Win-win.
posted by dirtynumbangelboy at 10:57 PM on August 2, 2008

My vote is for the latter. There is some speculation about whether Tao Lin actually "exists,"

I've met him once or twice. He's a very standard affectless hipster poet who constantly emphasizes the fact that he's in this to "move units." He actually uses that phrase, I'm serious. It's disgusting.
posted by nasreddin at 11:36 PM on August 2, 2008 [1 favorite]

When a young company is in need of some dough the big wigs in a company want to make serious money on top of their salary, they often will issue an IPO.

1% of IPOs are about getting money to expand the business. 99% of IPOs are about making a few men rich. If you pay attention to who issues IPOs and when they issue IPOs, it's as clear as day.
posted by pwb503 at 11:54 PM on August 2, 2008

His poetry is really awful, but his prose is crappy in a good way. I enjoyed this.
posted by limon at 12:01 AM on August 3, 2008

Nasreddin says:

I've met him once or twice. He's a very standard affectless hipster poet who constantly emphasizes the fact that he's in this to "move units." He actually uses that phrase, I'm serious. It's disgusting.

Yes, he uses that phrase on his blog, too, but it is clear from the context that he is using the term in a joking manner. Perhaps you mistook his deadpan delivery for seriousness?

If you read any of his blog, it becomes obvious that he is not the type of person who would say "move units" with seriousness.

By the way, I have never read any of his books --- his writing style seems too faux-naive and precious for my taste --- but was led to his website somehow and have returned several times.
posted by jayder at 12:07 AM on August 3, 2008

Perhaps you mistook his deadpan delivery for seriousness?

Quite possible. But it seemed to me to be at the point where irony wraps back into seriousness.
posted by nasreddin at 12:10 AM on August 3, 2008

All irony wraps back into seriousness if money actually pours in. Otherwise, it sits quietly, smirking and promising to be ridiculous and smart.
posted by jscott at 1:20 AM on August 3, 2008 [2 favorites]

Wow, interesting concept but all of this seems to have been for naught.

It's been a long time since I've gone through the US Series Seven material, but central to understanding what the SEC does is the fact that they exist to protect the general public. Before the SEC this type of stuff went on all the time, and it was very, very difficult for the retail investor to operate in the stock market, to pick good securities from questionable schemes.

So the SEC very carefully proscribes how and when the general public (e.g., the readers of Lin's blog) can be approached, and what information can / can not be communicated.

It appears what Lin is doing either is very questionable, and for many reasons. For example, he can't be approaching the public directly like this - the typical mode of engagement, at least at the outset, is paper, paper, paper. Throughly document what the firm does, how it does it, revenue, earning, etc.

And after all the paperwork has been filed for an IPO (and there is lots of paperwork, far more than the word count of one of his poetry books) we enter what's known as a "quiet period", where management (effectively Lim himself) simply can not discuss the future prospects of the firm. By speculating about film rights, etc, he's violated that SEC constraint, something that's caused IPOs in the past to be canceled or delayed. Even with the guidance of an investment bank, Google came very close to delaying their IPO in 2004. Salesforce.com wasn't so lucky and had to delay their IPO after a New York Times bio on the founder.

And he's also speculated about a secondary market in shares that apparently he'd provide liquidity in and control; once again, such talk is best avoided, especially so if it could be construed as an inducement to purchase shares i.e., guarantee of future value. Further causing him problems, he qualifies the existence of this market with statements such as "...if shareholders need money and want to sell their shares back to me, and I have extra money to buy back the shares, I will buy back the shares.". The SEC doesn't like such waffling - does the market exist or not? At what price will shares be purchased? This is how the SEC protects the retail investor. That single blog sentence could cost him, big time.

Even if he descopes his terms and conditions somewhat, and privately qualifies all investors, if he consummates a single sale after so openly speculating about future prospects - and if the SEC doesn't engage - he's opened himself for personal lawsuits that could potentially dwarf any monetary gain he'd realise from all of his publishing activities, past, present and future.

Seems like he would have been better off quietly looking for an angel investor. Finding a patron of the arts isn't that difficult, and he must already know of somebody who could help. Perhaps one of his blog readers does - that would have been a far more appropriate way to realise his goal.

This was not a good idea. I'm betting he'll take that post down very fast sometime next week.
posted by Mutant at 2:57 AM on August 3, 2008 [1 favorite]

interesting point Mutant. but I imagine it isn't hard to do this sort of thing under the radar. Its just not that much money changing hands.
posted by mary8nne at 3:08 AM on August 3, 2008

Mary8nne, I think Mutant's point is that the investors would have grounds to sue him for not meeting projections, not that the SEC would crack down on him.
posted by BrotherCaine at 4:07 AM on August 3, 2008

Some interesting comments at his blog .

Tao Lin: 'i can be trusted, look at my ebay rating.'

"According to an Orlando Business Journal (available online to anyone who does a search) article on December 18, 2002, your father J.T. Lin, thefounder and former chief executive of Orlando-based Surgilight Inc. was convicted by a Brooklyn jury of fraud and money laundering. I quote:
'According to the Securities and Exchange Commission, J.T. Lin was convicted for manipulating Surgilight's stock price by stating in press releases that it developed a way to cure presbyiopia, an age-related deterioration of eyesight.

Those statements were false, the SEC maintains.

Shares in Surgilight climbed from about $2.50 to $25 on that information. According to the SEC, which regulates publicly traded companies, Lin then sold off Surgilight shares he controlled for a profit of about $1.5 million. He then wired that money overseas.

Lin stepped down as CEO of Surgilight in August 2001.

Surgilight placed Lin, a former University of Central Florida professor, on leave when he was indicted on the fraud and money laundering charges in April 2002. He remained on the company payroll as a consultant until July 31.

In addition to the criminal case in Brooklyn, Lin and his wife, Suchin Lin, face civil charges for violating laws governing securities trading. The SEC is seeking to recover the $1.5 million in question plus interest and other penalties.

The Lins had previously settled a civil action filed against them involving another laser eye surgery company in September 1998.'
You are obviously continuing your family's proud tradition of enriching itself by defrauding investors. I bet your mom is very proud of you."
"*UPDATE* There is 1 share left and a 'waiting list' you can 'get on' in case people who have committed through email 'change their mind' or something before completing the contract. A NYTimes blog and metafilter linked."
posted by ericb at 6:11 AM on August 3, 2008

David Bowie did something similar when he issued the Bowie Bond. It was a really interesting situation and I think it's a direct precedent of this. More info here.
posted by micayetoca at 7:29 AM on August 3, 2008

When a young company is in need of some dough, they often will issue an IPO.

Actually they usually first seek private rounds of financing (Series A, Series B, Series C, etc.) from "angels," V.C.s, family and friends with the intention a a future liquidity event (IPO, acquisition, etc.).
posted by ericb at 7:39 AM on August 3, 2008

You have seen The Producers?
posted by pracowity at 7:47 AM on August 3, 2008

You will be a stockholder in "Tao Lin's Second Novel's U.S. Royalties Corporation."

Since he is offering shares in a corporation (C corporation, S corporation or LLC, etc.) to a relatively small number of investors, isn't he required to provide them with a PPM (Private Placement Memorandum) or similar written instrument?
posted by ericb at 7:49 AM on August 3, 2008

Tao Lin: melville house is probably the most professional independent publisher i know of, i eat dinner with them a lot

Um, yeah. Presumably Melville's lawyers will tell him to knock it off. If he gets sued, they get sued too since they're the only ones here with any money.
posted by ryanrs at 7:53 AM on August 3, 2008

I'm wondering if this is all a stunt or joke. After all, the potential liabilities for all parties involved are significant. He is making a "general solicitation" for funds from investors over the Internet, offering unqualified and questionable claims regarding projected returns, as well as offering to be the "market maker" -- clearly a conflict-of-interest. There appear to be so many legal, as well as security issues to raise red flags.

Statements such as: "As people resell their shares the price of each share will go up or down, you will see this conveyed on MSNBC as a number going by on the bottom of the TV screen." are incredulous. Yeah, right. When? After you float an IPO and become a public company and are listed on NASDAQ, NYSE, or AIM/London Stock Exchange, etc.?
posted by ericb at 8:00 AM on August 3, 2008

"As people resell their shares the price of each share will go up or down, you will see this conveyed on MSNBC as a number going by on the bottom of the TV screen."

BTW -- if he's serious and expects folks to believe this claim, I've got a bridge in Brooklyn in which I'm selling ownership shares.
posted by ericb at 8:02 AM on August 3, 2008

It's not really an IPO - that's a misnomer. It would actually be a private offering in a private company. The stocks wouldn't be sold on the open market. It would be just like a partnership where a couple of friends get together and start a business.

There are still a lot of regulations -- one being that those interested would have to be 'qualified investors'. I'm not clear on all that entails, but I think one key component is that you have over one million dollars in assets and $300k in family income here is the wikipedia article.

I do hope that guy hired a lawyer to look over this stuff. There are other options for raising smaller amounts of money, but also lots of regulations to prevent people from getting scammed.
posted by delmoi at 10:00 AM on August 3, 2008

Um, yeah. Presumably Melville's lawyers will tell him to knock it off.

Probably not. Melville House is one of those publishing houses run in someone's spare bedroom. They don't have "lawyers," I am pretty sure.
posted by jayder at 10:01 AM on August 3, 2008

I'm sure this is real and not that hard to set up. My dad owns a piece of a pro-golfer, well his earnings at least.

If setting a up shared interest in something was so difficult or full of liability there would be no start-ups. Where things get difficult, is if a company has more than 500 investors it starts to have to report like public company (IIRC, see section 12(g), Exchange Act).
posted by ill3 at 10:09 AM on August 3, 2008

If setting a up shared interest in something was so difficult or full of liability there would be no start-ups.

Setting-up a start-up is full of liabilities -- for all parties involved. Hence, the reason the SEC and state governmental organizations have strict guidelines in order to protect as best they can the parties involved.

I have been the co-founder of three start-ups and can tell you that there are numerous regulations that one must follow when raising private financing. A PPM (or similar document, such as a Prospectus) is required. In some instances, the number of people to whom you can distribute the documents to is limited. In cases where there is a company which wishes to raise capital from individuals without issuing registered securities it is forced to limit their search to people who are "qualified investors" (as mentioned above).
posted by ericb at 10:44 AM on August 3, 2008

They don't have "lawyers," I am pretty sure.

They must have some law firm they work with. I find it hard to believe you can run a publishing house without basic stuff like, say, contracts with your writers.
posted by ryanrs at 12:01 PM on August 3, 2008

On further thought, I can see how some two-bit publishing operation might run on little more than ink and Nolo Press forms. Maybe neither the author nor the publisher have enough assets to make an attractive target. Aggrieved investors could still sue for lulz, I suppose.
posted by ryanrs at 12:16 PM on August 3, 2008

I don't imagine he can pull this off while remaining anonymous, all the options for "printing money" are tightly regulated. I've seen other artists sell "shares", but these didn't return any dividends, the share itself was the art. A bookie might have options for organizing this.

If it's legal, I don't see this working unless owning the shares was a status symbol itself. In that case, people might not even cash all the dividend checks, just keep the first one or two as souvenirs.

To be blunt, such "start up funding" is what the National Endowment for the Arts was suppose to accomplish.
posted by jeffburdges at 1:11 PM on August 3, 2008

AAAhahah, hilarious Tao Lin story.
My girlfriend works, here in New York, as an assistant manager at a Major University Bookstore. One day we're walking down the street and we see one of the ubiquitous Tao Lin ad stickers that he or someone he knows put up all over the place. She had apparently missed them, and took a closer look.
"Huh," she said. "We busted this guy for shoplifting, like, last week."
I wasn't convinced, so we found a picture online. She assured me it was the same guy.
Now, I'm not sure what it takes to get sued for defamation of character here on the internet, so I'm not going to say, beyond a doubt, that Tao Lin is an idiot who shoplifts like a suburban teenager, i.e. for the fun of it. HOWEVER, when I googled his name and the word shoplifting, it brought me to a story he wrote for Esquire about a sasquatch who does shoplifting consulting for American Apparel and eats at Chickpea (a falafel place) on St. Marks. So I AM going to say he's a crappy writer who namedrops extremely uninteresting places.
posted by 235w103 at 2:47 PM on August 3, 2008 [1 favorite]

Seems like a scam. passiveincome.com

I'm not sure why he'd take the risk for 12K, however. Source material or some other angle, I suppose ...
posted by mrgrimm at 7:27 PM on August 3, 2008

I hate that he doesn't once mention the advance he's getting from the publisher (if any). He'll have to earn out the advance in order to start making royalties, which is tough enough for any writer.

Also, the lower the advance, the less faith the publisher has in the book (or the more faith he has in his ability to cash in on royalties, which would make me even more nervous if I were planning on investing in him).

An NYT mention and a Mefi post does not a bestseller make.
posted by mynameisluka at 9:14 PM on August 3, 2008

A comment from a person who was allegedly defrauded by Lin's parents:
“His parents’ fraudulent claims about their product caused investors over a million dollars in losses when they bought stock in good faith in this couple.

As I’ve said, Tao Lin is simply a crook like his parents. There is an SEC document about ‘Tao Lin Enterprises’ which they apparently used to launder money, and SEC filings show that Tao Lin himself owned Surgilight stock. Check out Edgar and whatever else you can find out online about this young scam artist and his crooked family before you invest a penny!

Trusting investors lost a lot of money by believing in Tao Lin’s parents and buying Surgilight stock.

They fled the U.S. for their native Taiwan and are there now, having managed to launder the money. They live well while those of us they stole from are shit out of luck.

Again, Tao Lin has NEVER publicly addressed how he feels about aiding and abetting his parents in their fraud, about living a luxurious lifestyle in their grand Orlando home on the money stolen from others.

He seems to be a sociopath, unconcerned with people’s feelings any more than he is with the ‘greedy corporations’ he shoplifts from.

Tao Lin is a bad person. I can’t imagine anyone with his lack of morals and ethics being a worthwhile writer. He is working on this scheme, as well as other scams, because his parents can’t send him the money that supported him his life now that the federal government is monitoring closely. Remember, there are still civil actions pending and an SEC judgment against them.

Apparently, unlike the other thousands up-and-coming writers, musicians and artists in New York, he feels he’s too special to have to do anything as mundane as take a day job. Most novelists have to do some sort of work, but not Tao Lin. It’s beneath him, or maybe he’s just supremely lazy.

He’s never really worked a day in his life.

Really, the only thing that can save this young man from what happened to his parents — his father eventually served time in federal prison — is for him to get a slap in the face in the form of reality.

He’s published three books of poetry, and Amazon and Bookscan sales figures reveal that each succeeding book has sold fewer copies than the last, so his long-range literary future is bleak.

If he could make the kind of money he claims, the smart editors and publishers at Random House, Farrar Straus, and all the other New York book publishing houses would have signed him up.

But he publishes his books with Melville House, a small independent two-person firm who apparently can’t see any need to give him the kind of advance on royalties Mr. Lin thinks he deserves.

So if no mainstream book publishers think his next novel is worth anything, and his current independent publisher thinks it isn’t worth all that much, why should anyone invest in a product like his next novel?

The whole project may be fiction.

This scheme is ‘The Producers’ - except Tao Lin doesn’t have Max Bialystock’s charm -- at least not to anyone who's not an adolescent like 90 per cent of his audience.”
posted by ericb at 8:00 AM on August 4, 2008

An NYT blog mention and a Mefi post does not a bestseller make.
posted by ericb at 8:00 AM on August 4, 2008

Touche, ericb. He's hailing it as an NYT mention (characteristic, methinks!). :D
posted by mynameisluka at 11:20 AM on August 4, 2008

The financial mechanics behind this project are very similar to a MeFi Project that was just posted by racecar.
posted by eclectist at 11:36 AM on August 4, 2008

I read Lin's article about the choads of Seattle, and I realized why people hate "hipsters."

I'm not saying "get off my lawn," but I am saying "stop begging for money, ya lousy bum."

@mynameisluka, I highly doubt he's getting advance from a boutique publisher who's only published 100 books.
posted by mrgrimm at 2:12 PM on August 4, 2008

An excerpt from a comment elsewhere on the Web:
"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.'

...It would behoove you to do some research before touting a scheme that is risky to investors, possibly totally fraudulent and certainly in violation of current federal securities investigations. It would be dangerous for any other writers to emulate him in this.

...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 by 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."
posted by ericb at 10:49 AM on August 5, 2008

Another comment:
"I can only assume Mr. Lim hasn’t bothered to register this offering with the SEC (typically a six-figure proposition). If I’m correct, Mr. Lim could only be operating under an exemption from registration, which generally require the offering to be restricted to those with whom the offeror (in this case, the author) has a substantive and pre-existing prior relationship. This means he can’t advertise the offering in a public forum (i.e. a blog). Also, unregistered shares (meaning shares offered wtihout the benefit of registration) generally are very restricted in their resale (by law). However, Mr. Lim’s blog assures potential investors there are no restrictions.

Accordingly, Mr. Lim appears to be offering shares without any regard for federal and state law applicable to this activity. In this respect, he’s on very dangerous ground. By handling this offering in such a sloppy fashion, Mr. Lim is essentially handing his future shareholders a free put. If they lose money, a smart plaintiff’s lawyer could easily get it back from Mr. Lim, as he appears to be violating every rule in the book."
posted by ericb at 11:11 AM on August 5, 2008

FYI -- Tao Lin has removed the hyperlink (as above) to MetaFilter (which had originally appeared in the *UPDATE*).
posted by ericb at 11:18 AM on August 5, 2008

Tao Lin implies in his comments (with specific reference to this NYT's blog post) that this is just satire, or as surmised above a stunt or a joke.
posted by ericb at 3:18 PM on August 5, 2008

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