by Mike Masnick
Wed, Sep 5th 2007 7:46pm
It's been amusing watching all of the ridiculous PR-generating gimmicks from the original dot com bubble come back to life over the last couple years from new companies who are either using the same playbook or too new at the game to know that it's been done before. For example, remember the online travel startup TravelZoo? In order to enter the already overcrowded online travel market and still get some traction, the company promised shares of stock to early users. While there were plenty of questions about the legality of this, it appears that the company played by the rules and didn't violate any kind of securities law (which seems surprising, since offering any kind of shares in a private company usually requires an awful lot of very specific hoops that you need to jump through) -- and it even paid off for some users of the site who were able to make some money. Unfortunately, the gimmick ended up costing Travelzoo a lot more than it expected. Either way, there's some random new company out there that's trying to do something similar, promising stock to users for performing certain actions within their site. Again, this should raise a number of legal questions, but the site's founders insist that it's okay because they're not actually issuing shares, just allocating them to be issued at the point of a liquidity event. It's not clear that a securities regulator would feel the same way about it. Publicly offering any kind of equity tends to require some very, very careful steps for any company to take, and you'd have to image that the potential risks from violating securities law could be a lot greater than any brief burst of (non-product-related) publicity this kind of gimmick generates.
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