June 26, 2014
Human-Equity Investing
Posted by Elizabeth Pollman

And now for a fascinating development from the startup world …

Several companies have sprung up that allow investors to buy shares linked to the performance or future earnings of a human being.  What does that person get in return?  They typically get cash upfront for selling a piece of their future income.

For instance, on one of the platforms, Fantex, you can currently “reserve IPO shares” linked to the income of EJ Manuel, a quarterback for the Buffalo Bills.  You can click on “read the prospectus” and it links to a Form S-1 filed with the SEC.  The S-1 has some interesting language that explains the details and mechanics of the “tracking stock.”  The website says after the registration becomes effective and the IPO shares are allocated to investors, trading can begin on the platform.  Fantex says, “It’s real stock, real money, and real athlete brands.”

Other platforms have different models and purposes.

Enzi calls itself a “pioneer in people to people social investing.”  It explains that it “enable[s] ordinary people to become angel investors in the education of talented students, in exchange for a share in their future income.”

Upstart, which was founded by ex-Googlers, “finance[s] people based on signals of their potential, including schools attended, area of study, academic performance, and work history.”  The platform offers a 3-year loan with an underwriting model that “simulates thousands of scenarios in a few seconds to assign an APR between 6.5% and 22.5%, based on the borrower’s modeled likelihood of default.” The platform makes money by charging borrowers an origination fee between 1% and 6% of the amount they receive.  The front page of the site currently features a picture of a Harvard Law student, amongst others.   The company’s blog says it has its “sights set on disrupting the $3.2 trillion consumer credit industry.”

You might be thinking that these developments raise some interesting issues.  Indeed they do as I recently learned from reading Jeff Schwartz’s smart new article on what he calls “human-equity investing,” forthcoming in the Illinois Law Review.  Jeff presented this paper at last week’s National Business Law Scholars Conference at Loyola Law School, Los Angeles, and it stimulated a very lively discussion.  Jeff argues that securities law has a role to play in this arena and he also suggests “a complementary regulatory regime” to require certain disclosures and set some boundaries to deal with the broader public policy concerns these arrangements pose.  I hear that the paper, The Corporatization of Personhood, will be up on SSRN soon.

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