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A Global Perspective – Europe Edition





A Global Perspective

With the year, and decade, coming to a close, we at thought it prudent to gauge industry sentiment as it stands.  What is the current state of the digital securities sector?  Is it better today than it was yesterday?  Maybe those ‘in-the-know’ feel as though strategic work still needs to be done.

These are all queries that many may have, including us as  With this in mind, we have reached out to various representatives within the sector.  Each hailing from differing regions of the globe.

The following commentary sheds insight into their thought processes, and how regulatory environments may shape market perception.


Africa, Asia, Europe, North America, and the United Kingdom are the regions which we have decided to look at, on an individual basis.

The following companies and their leads have taken the time to share their thoughts.

This edition will focus on Fintelum (EU), with subsequent entries into the series being published in the coming weeks.

Penny for your Thoughts?

Our methodology was simple – ask the same 5 simple questions pertaining to digital securities to 5 CEO/Managing Directors from around the world.

The goal? Gain insight into the variances in perception and adoption of the sector based on geography.  Something we feel is an important metric, given the potential of the sector to influence FinTech on a global scale.

Europe – Liza Aizupiete, Managing Director of Fintelum

Offering a suite of services built around digital securities, Fintelum is an Estonian based company, which launched in 2018.  The company looks to make full use of licensure, obtained through the Estonian Financial Intelligence Unit (FIU), in order to bring clients a comprehensive platform.

  1.   In your opinion, what represents the largest industry achievement/hurdle cleared, to date?

LA: Looking at the digital securities space in Europe, I would say, the biggest achievement has been raising awareness about the industry in general. I took part in the EU Commission’s High-Level Roundtable on Cryptocurrencies and ICOs back in Feb 2018. That was one of the first attempts for the crypto industry participants and EU regulators to gather around a table and discuss how the industry should be overseen.

Cryptocurrencies is one thing. It’s to do with the monetary theory and personal liberty expressions. But when you enter the realm of securities, which historically for the purposes of investor protection are a heavily regulated area, you are facing existing securities laws that need to be reckoned with.

ICOs came about as a wholly new asset class. It stands apart in the digital assets space. STOs, however, are nothing less than digital representations of presently in-force forms of legal agreements.

Therefore, for industry players it was first to understand for themselves, what digital securities are, then educate and raise awareness to others and especially the regulators. Indeed, it’s encouraging to witness that Blockchain as a technology and fintech industry development at large are being placed as one of the main objectives of the political guidelines, put forward by the EU Commission’s president Ursula von der Leyen, in December 2019 inauguration speech.

  1.   With the aforementioned achievements laying a foundation for the industry, what remains as the biggest obstacle moving forward?

LA: There are few obstacles for securities to exist in a digital format. Especially, if we want to represent them as cryptographic programmable tokens, publicly visible to everyone, and yet obfuscated as to the exact ownership. Furthermore, we are obliged to follow the existing local securities laws, which uniformly mandate investor protection. From there it follows that decentralisation is not strictly possible, and centralised governance and exogenous controls are required to ensure strict compliance with the securities laws.

However, it would be an understatement to say that these very laws are relevant today. Indeed, the whole industry lacks innovation precisely because these laws were written for the day and age, when internet was not a thing, let alone a smartphone or cryptocurrency.

Both primary issuance and secondary market operations are laden with practical obstacles. In most European jurisdictions one cannot purchase securities with cryptocurrencies.

Another obstacle concerns localisation, when a project solicits cross boarder investors. Most crowdfunding platforms limit their scope to local investor sources, whereas cryptocurrencies would allow for border-less investment flow. This may especially be attractive to nations with less economic and political freedoms to invest in a country with clear rule of law, such as the European member states.

The same goes to operating a secondary market for digital securities. In Europe one would run into obligation to get local authorisation (bank, broker or MTF license). Secondary market is clearly over-regulated, and unduly so, when it comes to small capitalisation securities.

One positive development, however, is visible in the EU crowdfunding regulation initiative. There the proposal is to lessen the regulatory burden on the secondary market operations allowing bulletin board type of matching for small capitalisation securities.

Overall, security tokenisation is foremost a legal hurdle, if one is to do it right. And by right, I mean allow for investment and exchange in cryptocurrencies on a global scale and at the same time operate according to the local securities laws.

There are a number of obstacles, some of which we at Fintelum are trying to overcome by lobbying changes to the local securities law. It is our aim to allow for security tokens to act as transferable securities instruments in a given jurisdiction. And thus alleviate issuance and subsequent shareholder register maintenance in a less costly and more technically effective way.

  1.   With regards to friendlyregulation and government acceptance, have you noticed any countries leaving the rest behind?

LA: There are countries in Europe that have tried to embrace crypto and blockchain innovation. And those which have rushed to regulate it, albeit with the best intentions.

Take Malta as an example. Last year I had the opportunity to sit on a Token Modelling panel at the first Malta Blockchain Summit, which was attended by over 8,500 people. This event coincided with the new law on crypto and blockchain coming in to force on 1 November 2018. Although the aim was to make Malta the centre of blockchain business and innovation, the result is quite the opposite. Largely due to overbearing and restrictive set of rules, there are not that many businesses setting up in Malta as a consequence, a year later.

On another spin, Germany, for example, up until recently did not have any crypto specific regulation. But it has been legal to use cryptocurrencies for purchasing and exchanging debt instruments.

Another progressive development came through from Luxembourg and France last year. Broadly, both countries enacted their regulatory approval for securities to have blockchain based representation as valid, acceptable and wholly legal.

  1.   Much has been made about the transformative capabilities of digital securities. With the potential to affect change in many industries, which do you feel stands to benefit the most from the digital securities sector?

LA: With the advent of cryptographic, programmable blockchain money, we are already seeing advancement in global financial inclusion. Just by pure existence, cryptocurrencies such as bitcoin and ether offer alternative monetary systems to those who disagree with their fiat counterparts around the world nation-states.

If the first use case was money, then the second most important use case is investment. Digital securities, such that we have envisaged at Fintelum, are digital representations of presently in-force forms of legal agreements. Undoubtedly, the law is overly restrictive and even irrelevant today. And, it is bound to change, adapt and improve, eventually.

Meanwhile, if blockchain based transferable securities instruments start populating public peer-to-peer blockchains soon, we should see a much more increased data transparency, inclusiveness and true globalisation.

 If data is more accessible, it also means that the levels of education and general understanding amongst retail investors will inevitably increase.

Any industry whre one needs a trustless and permanent trace of some event, or where one requires an immutable digital public record will benefit. Because the technology has indeed arrived.

  1.   Looking forward, where along the growth trajectory do you see digital securities in the next two, and five years?

LA: Despite the technology advancement, we the people still need to catch up on all that is now possible. In two years time, we might have many proven business cases. But at the same time, we will certainly still be acquiring knowledge and improving adoption. The learning curve will eventually steepen, especially in more advanced economies. The least advanced economies may even be at the frontlines of adoption due the political circumstances.

In five years time, everything can change. Perhaps by then we will have new technologies that we will need to adapt to. Take quantum capabilities, for instance, or artificial intelligence applications.

Today, it is our intention, however, to pair programmable securities against programmable money. In other words, issue and pair securities against cryptocurrencies and thus advance adoption and use cases.


Well there you have it!  As 2019 is about to wrap up, there is a clear trend evident within the sector – a positive one.  While many hurdles have been met and cleared, there remain many more on the horizon.  Despite this, the potential that digital securities holds to reshape FinTech remains as tantalizing as ever.

We will touch base in a few months, to re-gauge industry sentiment with a new set of influencers from around the world.  Until then, stay informed by frequenting!

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Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology. In addition to this, he is a licenced Paramedic in Nova Scotia, Canada. As such, he can provide emergency care/medicine to any situation necessitating it.


Supreme Court Reins in SEC on Disgorgement




Supreme Court Reins in SEC on Disgorgement

While the SEC holds a huge amount of influence and power, they do not operate without oversight, themselves.  This was on full display on Monday, as the U.S. Supreme Court issued a new ruling on SEC authority surrounding disgorgement.

Essentially, it was ruled that, while the SEC will retain the ability to seek disgorgement from offending parties, it will be limited to their profits.  This means that if a company raises $50M through illegal means, the SEC can only seek to retrieve funds up to the $50M minus any genuine operating costs.

The purpose for this limit is a simple one – disgorgement is permitted as a remedial, rather than punitive, action.  If the SEC were to seek funds exceeding what was raised, it would no longer represent a retrieval of funds, but a punishment for their actions.

Furthermore, the ruling indicates that funds, retrieved through these means, are to be used as compensation for victims that have lost money.


For those unfamiliar with disgorgement, it refers to the repayment of funds received/generated by parties which violated existing laws.

In recent years, disgorgement has been a commonly used method of the SEC, as made evident in various cases stemming from the 2017 ICO boom.


For those interested, the entirety of the U.S. Supreme Court’s ruling can be found HERE.  While there are various intricacies involved, the court’s decision can be broadly summarized by their statement, as follows.

“The Court holds today that a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under §78u(d)(5).”

Recent Examples

As aforementioned, the SEC has turned to disgorgement on various occasions, as of late.  The following articles are a few examples of it being used in crypto based cases.

After Months of Silence by ICOBox, the SEC Seeks ‘Default Judgement’ and ‘Permanent Enjoinment’

SEC Levies Various Charges against ‘Teshuater’

Veritaseum Hit with $8 Million in SEC Fines


Based in the United States, the SEC is a government run regulatory body.  This outfit is tasked with fostering safe, and transparent, markets surrounding securities.  This entails both the creation, and enforcement, of laws surrounding the sector.

SEC Chairman, Jay Clayton, currently oversees operations.

In Other News

While Jay Clayton may still be in charge at the SEC, his time at the helm may soon be coming to a close.  We recently touched on a tricky situation, currently evolving, which would see Clayton depart the SEC for a position as an Attorney General in Southern New York.

SEC Chairman Jay Clayton Moving On?

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SEC Chairman Jay Clayton Moving On?




SEC Chairman Jay Clayton Moving On?

Caught in the Middle

Jay Clayton, Chairman of the SEC, has found himself caught in the middle of a tricky situation.  The story goes like this:

On June 19th, U.S. Attorney General, William Barr, announced the Trump administration’s intent to name Jay Clayton the new U.S. Attorney for Southern New York.

This announcement soon became a major point of contention, as Geoffrey Berman (the current U.S. Attorney for Southern New York) had refused to abandon his post.  This stance was changed, however, when assured that his departure would not derail current investigations.

Replacing Geoffrey Berman for the interim is Deputy U.S. Attorney, Audrey Strauss.

Burnt Bridges?

While pure speculation at this point, many believe that these actions were taken due to ‘burnt bridges’ between Berman and the Trump Administration.  More specifically, Berman was/is at the helm of various corruption inquiries into associates of the POTUS.

The situation has seen various senators weigh-in on the situation.  Notably, Senator Chuck Schumer believes an immediate investigation should be launched into the situation.  Furthermore, he had strong words for Clayton, himself, stating,

“Jay Clayton can allow himself to be used in the brazen Trump-Barr scheme to interfere in investigations by the U.S. Attorney for SDNY, or he can stand up to this corruption, withdraw his name from consideration, and save his own reputation from overnight ruin.”

Back to Roots

If this move were to happen, it would not necessarily mark a return to his roots.  Prior to his tenure at the SEC, Jay Clayton was a seasoned corporate lawyer, with decades of experience.  What he lacks, however, is experience as a prosecutor – typically a prerequisite for Attorneys Generals.

It’s Complex

While his duties stretched far beyond regulating the burgeoning blockchain sector, Clayton developed a complex relationship with the community through his time at the SEC, thus far.

Clayton has many detractors from the crypto community, as he has had a hand in the denial of many Bitcoin ETF applications.

At the end of the day, however, the world of crypto remains rife with scams,y.  Despite having massive potential, Clayton has, for the most part, made sound decisions in regulating the growth of crypto base endeavours.

Be Careful what you Wish For

While Clayton may not be pro-crypto, there are many examples throughout his tenure of openness towards these young markets.

Those excited to see his potential exit should be wary, as his successor may very well adopt a strong anti-crypto sentiment – something which could prove to be very harmful for a sector still in its infancy.

A Short Run

If opting to leave his post at the SEC, Clayton will have completed a roughly 3 year stint at its head.  So far, no word has been given on a possible successor as the Chairman of SEC.

For decades, the position of Chairman at the SEC has been a revolving door.  The last individual to serve longer than 4 years was Arthur Levitt, during the Clinton Administration.


Word of Clayton’s potential replacement comes 1 year after the CFTC saw their very own chairman, J. Christopher Giancarlo, step down.  During their time spent at the helm of their respective organizations, both, Clayton and Giancarlo, were vocal on their approach towards blockchain.  While Clayton has remained more conservative, to this date, Giancarlo was viewed as more progressive and welcoming to change.

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OSC Finds Extensive Evidence of Fraud/Theft by Gerald Cotten and QuadrigaCX




OSC Finds Extensive Evidence of Fraud/Theft by Gerald Cotten and QuadrigaCX

Over a year has passed since the demise of popular Canadian exchange, QuadrigaCX.  Despite this length of time, new findings are still being released surrounding the peculiar chain of events that saw $215 million go missing – a total representing the holdings of over 75,000 clients.

The Good

While the actions of Gerald Cotten and QuadrigaCX are, without doubt, a blight on the cryptocurrency industry, it is important to remember the old adage ‘do not paint with a broad brush’.

The OSC has, thankfully, recognized this, and taken the time to ensure readers that they are not condemning the sector as a whole, in their report.

“The misconduct we uncovered in relation to Quadriga is limited to Quadriga and should not be understood as applying to the crypto asset platform industry as a whole. Properly conducted, crypto asset trading is a legitimate and important component of our capital markets. We remain committed to working with this industry to foster innovation. Financial innovation has always been critical to the health of our economy and the competitiveness of our capital markets.”

The Bad

Now we move on to the bad.  After a thorough investigation, the OSC has determined that QuadrigaCX operated, essentially, as a Ponzi scheme underneath a ‘layer of modern tech’.  This Ponzi scheme is believed to be orchestrated by the late founder of QuadrigaCX, Gerald Cotten.

Furthermore, due to the custody model utilized by the exchange, the OSC believes QuadrigaCX to have been in consistent violation of securities laws.

“…whereby Quadriga retained custody, control and possession of its clients’ crypto assets and only delivered assets to clients following a withdrawal request—meant that clients’ entitlements to the crypto assets held by Quadriga constituted securities or derivatives.”

To this day, many of those affected by the debacle caused by Cotten have remained hopeful that the lost keys to his crypto wallets would be found.  This was due to a belief that these wallets contained much of the missing funds.  Unfortunately, the OSC has indicated that this is a fallacy.  Rather, the vast majority of missing funds were due to Cotten’s illegal trading activity.

 “It has been widely speculated that the bulk of investor losses resulted from crypto assets becoming lost or inaccessible as a result of Cotten’s death. In our assessment, this was not the case. The evidence demonstrates that most of the $169 million asset shortfall resulted from Cotten’s fraudulent conduct, which took several forms.”

If that wasn’t bad enough, the OSC concedes that, due to the circumstances (QuadrigaCX bankruptcy, and Cotten’s death), there exists very little room for recourse.

Financial Breakdown

In their report, the OSC notes that roughly $215 million is owed to QuadrigaCX customers.  They provide the following breakdown, shedding light on where the money has gone.

  • $115 million
    • Lost by Gerald Cotten through illegal trades on QuadrigaCX
  • $46 million
    • Recovered funds, now in the possession of a trustee
  • $28 million
    • Lost by Gerald Cotten through illegal trades on external exchanges
  • $23 million
    • Miscellaneous losses yet to be accounted for
  • $2 million
    • Funds stolen by Gerald Cotten to fund his lifestyle
  • $1 million
    • Operational losses

Whether through misappropriation, or illegal trades, the late Gerald Cotten is believed to be directly responsible for roughly $145 million lost in client funds.

Words of Warning

Throughout their report, the OSC doesn’t mince words when addressing companies still operating in the blockchain industry – Contact the OSC to see if registration is required under current laws.

They explicitly note, on multiple occasions, that securities laws apply in many instances, even when the traded assets are not securities.  The deciding factor comes down to how these assets are handled by exchanges.

“A platform would generally not be subject to securities legislation if the underlying crypto asset being traded is not a security or derivative, and there is immediate delivery of a crypto asset to the client after a transaction…In contrast, if a platform retains possession and control of the crypto assets being traded on the platform, securities law may apply.”

While this distinction may be small, it is an important one.  The OSC is imploring Canadian exchanges to reach out and determine where they fall within regulatory guidelines.

 “Platform operators should be aware that, depending on their business model, they may have to register with the OSC and they should take appropriate steps to comply with Ontario securities laws…Platforms should review their operations to ensure that they have procedures in place to manage risks to clients and that they are accurately disclosing key information about their operations to clients.”


The Ontario Securities Commission (OSC), is a regulatory body, tasked with ensuring fair and transparent markets.  This is done through the creation, and enforcement, of laws surrounding securities in the province of Ontario.

CEO, Grant Vingoe, currently oversees company operations.

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