Abstract

Innovations in corporate finance are driven by frustrations with present regulations and fueled by the internet and social media. Hyperfunding is one such example: Tesla paved the way for an electric vehicle revolution by preselling hundreds of thousands of its Model 3 EV direct to consumers. Unwary consumers may not have realized that they were underwriting Tesla’s bold strategy to transform multiple product markets. Risks were not disclosed. Rewards proved illusory. Investors would have been entitled to disclosures and colorable claims of fraud when Tesla missed milestones and deadlines. But consumers can only get their $1000 deposit back, without interest, if Tesla has the financial and reputational capital to refund consumers. What happens when an undercapitalized or fraudulent firm uses the same technique and fails to deliver? Are cryptocurrency promoters and “initial coin offerings” already Hyperfunding, pumping, and dumping vaporware? This Article explores challenges with regulating novel techniques in corporate finance and discusses an initial framework for protecting investors while promoting innovation.

Department

Law

Publication Date

1-1-2018

Journal Title

University of Colorado Law Review

Document Type

Article

Included in

Other Law Commons

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