Edmond Tuohy is the CEO of MERJ Exchange. MERJ Exchange is an innovative end to end, multi-market global financial exchange for equities, debt and derivatives.
MERJ is soon to launch its Digital Assets and Security Token markets along with the opportunity to invest in MERJ Exchange.
Antoine: MERJ Exchange is a securities exchange that currently offers an Equities, a Derivatives, and a Debt Market. What’s the inspiration with expanding to digital securities?
ED: We strongly believe in the potential of digitization to transform the capital markets. Quite simply we think it is the future. There are 3 headline reasons why we are moving in this direction:
1) This technology can streamline everything we do in the securities markets, from issuance, to shareholder registers, compliance, distributions, voting etc. The opportunity to streamline big chunks of this workstream is very attractive and would benefit everyone involved.
2) We can dramatically reduce frictions for people who may not have participated in the capital markets in the past. By frictions I mean you won’t need a computer, or a stock broking account, or even a bank account. Many emerging markets have been empowered by the “mobile first” revolution. We want to build an access point to the capital markets that integrates seamlessly with that ecosystem.
3) We are perfectly set up for it. We operate a Regulated Market with integrated post trade infrastructure, which is quite unusual If you look at other Regulated Markets around the world, they are tied into a central clearing / central depositary model. This means lots of disparate organisations are going to have to agree on exactly how to process digital assets. We have the infrastructure and regulatory approval to bring both institutional and retail investors into the world of digital assets in a way that is compliant from end to end.
Antoine: What does the name MERJ symbolize?
Ed: I’m glad you asked that. I love the name MERJ. As much as we strongly believe in tokenization, we also strongly believe in the principles of securities laws, investor protections and regulation. MERJ is a reference to the idea of combining the best of the old world and the new. The best of traditional market protections with all the potential benefits of this digital technology. It is also a reference to the idea of merging all the layers of the settlement and custody chain. Instead of multiple reconciliations taking a few days we can look forward to one almost instantaneous transaction.
Antoine: MERJ Exchange Limited is currently the only licensed securities exchange in the Republic of Seychelles. What made you choose this domicile versus other popular offshore jurisdictions?
Ed: We are a Regulated Market – in that we provide the same function in the Seychelles as the LSE in the UK and the NYSE in the US. It’s not so much that we chose the Seychelles, more that the Seychelles needed a stock exchange and we were the right people to do it. This story began post GFC, when the IMF and the World Bank sat down with the Seychelles government and encouraged them to develop the financial services sector here. Part of that was to establish a stock exchange. We put ourselves forward to do it and have been working hand in hand with regulators here since 2011 to build an international exchange. Our listings now account for more than 20% of the national GDP, which is a key metric in evaluating the maturity of an economy. The FSA Seychelles is now an associate member of IOSCO and MERJ is an affiliate member of the World Federation of Exchanges. These are not trivial achievements and are very important when it comes to institutional investment mandates, so we are able to open this market up to widest possible pool of global capital.
Antoine: How many securities are currently listed on the exchange?
Ed: 29 equity and 2 debt. We have issuers from 5 continents and investors from 7.
It takes time to build the kind of infrastructure and regulatory standing we have here – and there are no shortcuts. We now have a great foundation for a very exciting phase of growth.
Antoine: Most of the companies listed on the MERJ exchange are African, which makes complete sense since Seychelles is often portrayed as the Cayman Islands of the African continent. Most investors in Europe will be familiar with Seychelles, but the same cannot probably be said for North American and Asian investors. Do you believe that you will need to educate STOs on the benefits of being listed on an exchange in this jurisdiction?
Ed: We adhere to the standards of IOSCO and the WFE, international investors don’t mind whether we are in London or Seychelles. We already have issuers from North America, Asia, Australia, Europe and Africa. We are going to be providing something that isn’t available elsewhere and Issuers will go where the liquidity is.
Having said that the Seychelles is actually a great story of international cooperation. There are so many reasons why Seychelles is a good jurisdiction and any STO issuer that is serious will do their research and quickly realise that. In the last 10 years the Government and regulators have worked with international agencies like the OECD and FATF to bring the Seychelles up to the highest international standards. The OECD now ranks it with the UK, Japan, Germany, USA and Australia. Since the IMF and World Bank stepped in the country has gone from a B- rating to BB. That really underlines the trajectory of the economy. Our view is that the STO market is likely to be quite borderless, but issuers are not going to want to go to a jurisdiction that doesn’t meet these high international standards, because it will attract greater scrutiny from other regulators. In the securities markets there is no regulatory arbitrage, people want clarity and simplicity, not added hassle. The Seychelles offers that in abundance, as well as an advantageous tax regime, many double tax agreements, a thriving corporate services sector, competitive pricing. If all of that isn’t enough for you it’s not the worst place to have to visit for business.
Antoine: What will be the onboarding and listing requirements for new STOs?
Ed: Our onboarding procedure follows the same KYC/ AML process as for clients wishing to trade any listed securities. As for the listing requirements, the chosen token standard has to be to be compatible with our regulations but otherwise they are exactly the same as for our traditional securities. We have 3 equity boards, a main board, an SME board and a venture board. An STO would have to choose which board was most appropriate and then meet the listing requirements. We work on a sponsor advisor model, so STO’s will work with one of our global network of sponsors to prepare them for listing. The sponsor undertakes responsibility for due diligence and making all the relevant disclosures. This is the same process that an issuer would go through to list on AIM in the UK or the Toronto venture exchange in Canada. We think it’s a great model and will work well for STO issuers.
Antoine: You recently announced that you will be launching your own security token, which will then be traded on your own exchange. What’s the expected date of this STO launch? Also do we know the hardcap yet?
Ed: First we have to list our equity by introduction on the exchange. This is imminent, and when done it will be the first equity to be listed on a national stock exchange in tokenized form. It’s really quite a major watershed point for the digital asset community. The subsequent STO will be a public offering of ~15% of that tokenized stock. We don’t want to launch the STO into peak summer so we will probably wait a couple of months now. The funds are for growth capital, largely to bring more people on board. We are very confident of our pipeline and we need additional people in operational and compliance roles to service the demand.
Antoine: What benefits will investors receive from this investment?
Ed: The benefit is a stake in an exchange which we think is one of a kind. We have the flexibility to trade, clear, settle and register securities ourselves, or plug into any other global infrastructure if it makes better sense. This in itself is unusual, and a deliberate piece of Seychelles law, which was designed to be outward looking. Consider our regulatory status, licenses, permissions, the structure of our business, the combination of regulated exchange/clearing/depositary entities, the clarity provided by our regulator and the fact Seychelles is a well respected jurisdiction with a modern financial services industry. When you look at all these factors in combination, you realise it is a very compelling, and entirely unique proposition. We have an opportunity here to build a truly world class piece of infrastructure for the next generation of capital markets. Our competitors around the world are the likes of LSE and NYSE and they are not in a position to move so quickly and decisively. There are big fish and there are little fish, but we like to think we are a fast fish! Our investors will own an equity stake in a very exciting company that is spearheading the next generation of financial markets infrastructure.
Antoine: When do you expect your first security token offering to go live?
Ed: We have a number of issuers that are keen to push the button as soon as possible. I am quietly confident that we will have done a handful before the end of the year and a couple of dozen within the next twelve months.
Antoine: Is there anything else that you would like to share about MERJ Exchange?
Ed: We have a tremendous team based in the Seychelles, Cape Town, Johannesburg and London. We are looking for experienced market professionals to join us and help deliver on our vision. If anyone would like to work in the Seychelles or Cape Town, or represent us in another region then drop us a CV at email@example.com.
Antoine: Thank you for the great interview. Anyone who wishes to learn more should visit Merj Exchange.
Masha and Xenia Vyazemskaya, Founders of ValueTokenized – Interview Series
Masha and Xenia Vyazemskaya are known as the Crypto Twins. They host the popular podcast ValueTokenized which provides free educational content to help businesses tokenize the world.
How did you first discover blockchain and cryptocurrencies?
By lucky chance! We have always been in communications, and a good friend once asked for our assistance and PR advice for a blockchain project back in 2017. Fast forward several months, blockchain has entirely captured our attention, and we’ve been helping blockchain projects with content marketing and PR ever since, helping the tech guys tell their stories and educate audiences.
Which was the first token that you purchased and what motivated you to purchase this token?
I believe it was XRP. Xenia liked the idea and completely ignored the “buy low, sell high” principle, which turned out to be a pretty bad investment. The sum was insignificant, though.
Bitcoin was our second crypto investment. And it quickly became more. It took us over a year to understand the real beauty of bitcoin and the values behind it. We’re big believers in bitcoin vs. fiat currencies, and we’re doing our best to facilitate the adoption.
What inspired you to get involved in the space?
It is fascinating to watch the new industry emerge and mature. For us, it started with curiosity and excitement for the brand new space, which then turned into a clear understanding of the demand for unbiased expert content and the value we can bring in this regard. The most inspiring thing for us now is when experts contact us to arrange an interview or a panel discussion, and receive feedback from the audience.
You’ve done multiple YouTube videos, including discussing some recent industry trends such as IEOs replacing ICOs. How do you personally feel about IEOs?
Our podcast ValueTokenized is dedicated mostly to asset tokenization and practical applications for blockchain technology in capital markets. When the IEO trend was growing half a year ago, however, we couldn’t help but cover it.
Our opinion on IEOs is pretty much aligned with that of our speakers – including an early investor in Bitcoin, Uber and Airbnb Jeffrey Wernick. IEOs merely seems to be an attempt to prolong the fading life of ICOs – which per se had nothing bad to it as a concept, but the implementation left a lot to be desired.
In any case, we strongly believe that the future for blockchain and cryptocurrencies lies within:
1) asset-backed tokens and;
You’ve also conducted multiple interviews which feature different jurisdictions for launching an STO. These jurisdictions include Singapore, the United States, Israel and Liechtenstein. Based on these interviews and your knowledge of the space, which jurisdiction would you personally favor to launch an STO and why?
The choice of jurisdiction for conducting an STO depends on many things: whether you want to target retail (non-accredited) investors, in what regions do you want to sell your securities, and so on.
Switzerland and Liechtenstein are probably our favorites in Europe due to clear rules and industry specific regulation that doesn’t require any legal workarounds. The United States, however, attract a lot of attention as a jurisdiction because there are many tech-advanced investors who currently might be more open to purchase new financial instruments in the form of tokens. An important thing to remember: if you want to do an STO and sell your tokens in Europe and in the US, you must be compliant with both.
You’ve also discussed tokenizing various assets. What are some of these asset classes and which asset class do you personally believe has the most potential to scale?
Real estate offers the biggest use case with clear benefits for tokenization. In October, we have seen multiple cases including Tokyo-based Lead Real Estate funding development of condominiums and hotels ahead of the 2020 Japan Olympics through issuing security tokens; a consortium of Gulf families’ plans to tokenize US$ 1 billion worth of property assets and other exciting projects.
There are several reasons: fractional ownership offered by tokenization is a natural fit for real estate. Moreover, programmability of the tokens allows a structure to represent various economic interests – ownership rights, different income rights. On top of that, real estate is something investors understand, it’s a fixed income asset class and a rather low-risk investment.
From the perspective of the issuer, tokenization can offer a more cost-effective way to fundraise with a significant reduction in cost and friction for further management of securities.
We also believe venture funds to be a promising field for tokenization. Today, it enables easier and more cost-effective management of funds, easy ownership transfer, and so on. Potentially, tokenization can provide for democratization of VC market, opening it to millions of investors with small checks. For the latter, however, the technology is not enough – it requires corresponding amendments in the regulation. Whether we will see it or not soon remains debatable. Nevertheless, the existing benefits are already exciting.
What are some of the companies in the space that personally excite you?
Where do you see the industry being in 5 years?
We share the vision that capital markets on blockchain is the question of when, not if. In 5 years, we most likely won’t be talking about blockchain as a separate industry, as it will be the essential part of global financial markets.
Whether tokenization will unlock the liquidity for previously illiquid assets, democratize access to venture capital and fulfill other promises that are widely discussed today, remains to be seen.
In any case, communication and education is what is need for the industry to grow and mature. The more we focus on this today, the more outstanding results we will see in 5 years.
Is there anything else that you would like to share with our readers?
Just one thing: feel free to reach to us anytime with podcast and collaboration ideas.
Let’s do something cool together 🙂
Aaron Kaplan, CEO of Prometheum – Interview Series
Prior to Prometheum you were the Founder of EquityArcade, a platform that enabled consumers to buy shares in video game startups. Can you let us know how your experience at EquityArcade transitioned over to Prometheum?
EquityArcade was a Reg CF equity crowdfunding platform that allowed consumers (investors) to invest in the future revenue generated from indie game funded on the platform. Reg CF is part of the JOBS Act, which also contains the Reg A+ crowdfunding rules. Prometheum uses Reg A+ as a means to allow the general public to invest in blockchain securities. All JOBS Act regulations relate to online equity crowdfunding. As a result, we have been able to leverage many of the experiences and lessons from EquityArcade in building Prometheum’s Reg A+ offering platform.
Prometheum enables companies to raise capital by offering their own Smart Security Tokens (SSTs). Can you share with us how SSTs differentiate themselves from other industry standards such as STOs (Security Token Offerings) or DSOs (Digital Security Offerings)?
SSTs, STOs and DSOs are all different protocols that are attempting to solve the same problem. Until there’s complete regulatory clarity around certain critical components – including custody – of the blockchain securities ecosystem, it’s not possible to conclude which protocol provides the best foundation.
What’s the process for a company to launch an SST?
An issuer looking to issue a SST will submit an application for an offering to Prometheum. At that point, the issuer will submit all relevant documents that will allow Prometheum to conduct the requisite due diligence in order to determine whether the company is qualified to issue an SST. Upon passing the due diligence process, the issuer will complete the Reg A+ offering circular and submit that document to the SEC for qualification. Once qualified by the SEC, the offering will be listed on Prometheum’s offering platform and begin their capital formation activities. When the stated amount of capital is raised, there will be a closing and distribution of the SST into the investors’ Prometheum brokerage account. Upon distribution of an SST, Prometheum’s issuance platform coordinates the multi-signature, multi-stage process that is used to place investors’ SSTs in either their Master or Personal Wallet. Once the distribution occurs, Prometheum will list the SST on our retail based (i.e. open to all investors) Alternative Trading System (ATS), and secondary market trading will begin in the issuer’s SST.
What type of fees should companies expect from launching an SST and hosting it on your platform?
Our goal is to allow companies to raise up to $50m in the most efficient way possible: faster, less expensive, and easier than any other legal capital raising method. In terms of direct fees, we plan on charging issuers a small percentage of the total amount they raise (1-3% dependent on the total raised). Once a token has been distributed and is trading on the ATS, companies are charged a quarterly membership fee of $2,500 for maintaining their order book.
Indirect fees not charged by Prometheum can vary and are related to legal and prep for the creation of the Reg A documents, accounting, auditing, marketing, and other possible professional services.
SST will be Reg A+ issued. For investors who are not familiar with this legislation and what does it mean? Could you explain the benefits?
Regulation A+ allows issuers to raise up to $50 million from the general public annually, and such securities, when issued, are freely tradeable on a secondary market. Reg A+ is really the perfect regulation for issuing blockchain securities as it meets the spirit that was initially conceived by the crypto community- it allows the general public to invest, and the asset is freely tradeable upon distribution but in a regulated manner (unlike many historical token investments).
Tokens that are created on your platform will then be tradeable on a custom ATS (Alternative Trading System). Could you elaborate on how your ATS will operate?
On the surface, the ATS operates just like a traditional equities electronic market. Every token has as order book representing supply and demand for that token – bids (what buyers are willing to pay, and the number of tokens they want) and asks (offers to sell, or what sellers are willing to sell for, and the number of tokens they want to sell). This order book is managed by the matching engine which uses an algorithm to arrange the bids and asks into a price, upon the price quote the engine then utilizes time priority, and ultimately “matches” buyers and sellers when they meet at the same price. There is an online trading platform, similar to Etrade or Schwabb, which allows traders and investors to see the order book, look at charts, enter orders and see their account status and previous transactions. Through the use of omnibus accounts, other broker-dealers will be able to offer their customers access to SSTs. Our ATS intends to operate 2 sessions everyday, both 11 ½ hours long with two 30 minute breaks for settlement. When there is an executed trade, meaning an order between a buyer and seller is matched, the trade is written to the blockchain, as well as recorded to a database to ensure compliance with traditional record keeping.
Are SST tokens launched on your platform tradeable on regular security token trading exchanges such as OpenFinance and tZERO?
SSTs are compatible with Prometheum’s ATS and work as both securities and utility tokens in the Prometheum ecosystem. It may be possible for SST issuers to create a bridge to other exchanges or blockchains by building smart contracts on the Prometheum Utility Blockchain. As the equivalent of a national market system for digital assets develops it will likely be necessary for digital assets to have the ability to trade across security token exchanges and alternative trading systems.
What are Ember (MBR) tokens and what role do they play in this project?
The Ember SST fuels all SST transactions and allows holders to provide services at the protocol and application layers. Prometheum’s Ember token has both profit-making utility (work/access) and proprietary payment currency features. Ember provides the fuel for the Prometheum blockchain Network and demonstrates the versatility and value provided by a modern approach to using securities to transfer value in a decentralized, blockchain based environment. Ember is the first SST issued on the Prometheum Blockchain and sets the legal and technical precedent for further SSTs.
It seems like you are building everything from scratch, why not use an existing blockchain?
The Prometheum blockchain is required in order to ensure that regulatory requirements are met while also providing a viable method for the use of blockchain securities as utility tokens. This includes direct interaction with distributed applications as well as processes for moving blockchain securities in and out of brokerage accounts when a user wishes to trade them on the Prometheum ATS.
Is there anything else that you would like to tell us about Prometheum?
Prometheum is creating the market infrastructure needed for digital assets to go mainstream. When the SEC essentially declared that tokens were securities in the 2017 DAO report, such infrastructure didn’t exist, which meant that there were no compliant facilities for the issuance, trading, clearing, settlement and custody of token securities. Prometheum sought to fill that void and is creating the infrastructure that will allow the general public to invest and trade in digital assets, while also providing mechanisms for clearance, settlement and custody after trades are made. The Prometheum Network is meant to allow the general public to participate, which is required in order for digital assets to go from a new asset class to a mainstream asset class.
Philip Moustakis, Counsel at Seward & Kissel LLP – Interview Series
Philip advises companies and individuals on SEC enforcement matters, including criminal enforcement investigations, internal investigations, and cryptocurrencies and blockchain technology.
Philip has extensive experience with securities enforcement matters. For more than a decade prior to entering private practice, he served as senior counsel in the SEC’s Division of Enforcement, investigating and prosecuting complex matters involving violations of the federal securities law.
Before being employed with Seward & Kissel LLP you were a member of the SEC’s Cyber Unit which focused on cryptocurrencies and ICOs. How were you initially recruited for this Cyber Unit?
I started in the SEC’s Enforcement Division in 2008 and began working on Bitcoin and cryptocurrency-related matters about five years prior to the creation of the SEC Cyber Unit. I brought the SEC’s first Bitcoin-related enforcement action against the operator of Bitcoin Savings & Trust and led other cryptocurrency-related matters as well. I briefed Chair Mary Jo White and the other Commissioners, and frequently conducted training for the FBI, FINRA, and others, on Bitcoin and blockchain technology. I also presented in academic settings on my work. So, when the Cyber Unit was formed in 2017, with a mandate that included cryptocurrencies and ICOs, I was a natural fit.
How did the action against ‘Bitcoin Savings and Trust’ influence future enforcement actions by the SEC?
Bitcoin Savings and Trust, which raised a staggering 700,000 Bitcoins from investors, was charged as a plain vanilla Ponzi scheme, with the exception that all investments were solicited, and purported returns paid, in bitcoins. But it was notable for several reasons. First, it established that the investment of Bitcoins could satisfy the “investment of money” prong of the test for an investment contract, otherwise known as the Howey test. Second, it demonstrated that the SEC could conduct a flow-of-funds analysis on the Bitcoin blockchain. While we could not demonstrate where every Bitcoin came from or went, we could show that more Bitcoins were going out to investors than came into Bitcoin Savings and Trust from any source other than investors, thereby proving the Ponzi. Third, we did not take the position that Bitcoin itself was a security. And finally, the case was significant for the disgorgement theory advanced by the SEC, namely, that the disgorgement ordered by the court should reflect the dramatic increase in the value of Bitcoins from the time the investors handed their Bitcoins over to the defendant, to the date of the judgment. The Bitcoins the defendant raised from investors were worth about $4.5 million at the time, but the final judgment against the defendant was for more than $40 million in disgorgement and penalties.
You were a founding member of the SEC’s Distributed Ledger Technology Working Group. What is the purpose of this group, and how does it impact both investors and STOs?
With the wider adoption of blockchain technology, the SEC’s Distributed Ledger Technology Working Group was simply an effort to coordinate both with other regulators and within the SEC. It was important to ensure the various divisions and offices of the SEC were not working at cross-purposes with one another. The SEC has since built on the work of the group with the creation of its Strategic Hub for Innovation and Financial Technology (FinHub), which engages in outreach to both investors and issuers.
You were responsible for investigations into multiple initial coin offerings (ICOs) for possible violations of securities laws. What’s the most blatant violation of securities law that you have witnessed?
Without hesitation, it’s the ICO craze of 2017 and 2018. In February 2018, SEC Chairman Jay Clayton, testifying before the Senate Committee on Banking, Housing, and Urban Affairs, famously said, “I believe every ICO I’ve seen is a security.” A few months later, in a televised interview, Commissioner Robert Jackson said, “if you want to know what our markets would look like with no securities regulation, the answer is the ICO market.” On the whole, I agree with those sentiments. Most ICOs, during that period, were traditional capital raises, with the basic difference being that, in an ICO, one could purchase shares in a company’s primary asset rather than shares in the company itself. It’s not to say that most ICOs were frauds or not well-intentioned. However, there wasn’t much ambiguity about the fact that they were unregistered securities offerings.
It’s common practice for ICOs to block investments from USA investors. Nonetheless, those same blocked investors can then later purchase these tokens on cryptocurrency exchanges. Does this strategy of initially blocking USA investors keep ICOs safe from SEC enforcement action?
The short answer is no. If an issuer accesses the U.S. capital markets, if it offers or sells securities in the U.S., directly or indirectly, the SEC will have jurisdiction. The SEC has made it clear that it is not sufficient to take cosmetic or half measures to prevent one’s security token offering (STO) from reaching U.S. investors.
Do you believe that the SEC will become more proactive in pursuing legal action and shutting down unregulated cryptocurrency exchanges?
Yes. Bringing enforcement actions against exchanges that decline to come into compliance for whatever reasons, despite the SEC’s messaging in the space, makes sense for the Enforcement Division. Not only to give teeth to prior statements by the Chairman, other commissioners, and certain members of senior management, but also because an enforcement action against an exchange, on the whole, should have a greater programmatic impact from a regulatory perspective than an action against a single issuer.
Do you have any comments regarding the SEC’s most recent actions against Telegram Group Inc and its unregistered securities offering?
In my view, there are a couple of important takeaways. First, related to your earlier question, the Telegram case demonstrates the SEC will pursue overseas issuers of digital assets or cryptocurrencies who offer or sell those assets into the U.S., or otherwise access the U.S. capital markets. Additionally, I think this could be an interesting test case for the utility token argument. Telegram has taken the position that, while the token purchase agreement for the Gram was a security, the token itself is not. In its complaint against Telegram, the SEC alleged there was no daylight between the Gram offering and the Gram token. Rather, the SEC alleged, the offering was a traditional capital raise because, among other things: the company used funds raised for operations and to build out its ecosystem; there were no goods or services for which one might use the Gram; and Gram purchasers had and – absent the emergency action – would continue to have a reasonable expectation of sharing in the company’s profits should it succeed in building out the functionalities it promised. It will be interesting to see how the facts and arguments develop on this issue as the litigation progresses.
Could you share with us details regarding your current role with Seward & Kissel LLP?
I joined Seward & Kissel in February 2019 and work closely with several of the firm’s practice areas in both New York and D.C., including the Government Enforcement and Internal Investigations, Investment Management, and Blockchain and Cryptocurrency Groups. I spent the majority of my career at the SEC in the Enforcement Division’s Asset Management Unit, and Seward & Kissel has one of the largest and well-known Investment Management practices in the U.S., working with managers across all asset classes, including digital assets. As a result, much of my current practice centers on counseling our investment management clients on SEC and other regulatory examinations, investigations, and enforcement matters; internal investigations; and digital asset offerings. I have also been asked to lead the Enforcement Committee for the Virtual Commodity Association in connection with its efforts to establish a self-regulatory organization (SRO) for cryptocurrency marketplaces.
What are some recommendations that you have for companies that are considering launching an STO?
In my view, the best course of action is to engage counsel with deep knowledge of both securities law and cryptocurrency. While some lawyers have gotten up to speed on blockchain technology, many may be doing their clients a disservice because they are not as well versed in the fundamentals of the securities laws.
At what stage should companies who are considering launching an STO contact you or other legal counsel?
The earlier the better – ideally before any contact with a regulator, and certainly before the offer or sale of any token.
Is there anything else that you would like to share with our audience?
The SEC’s enforcement actions against ICO issuers clearly have had an impact on the market. However, Telegram, Block.one, and Kik were just three of the larger ICOs from the 2017-2018 period. We should see more such cases in the coming months or year. The SEC has brought enforcement actions against celebrity promoters of digital assets, but I would expect a continued focus by the SEC on promoters and sellers. It’s worth noting that one stated goal of SEC enforcement actions is to change the behavior of market participants, so I anticipate the SEC will continue to police digital asset exchanges and trading platforms. It’s the natural next step for the SEC after the issuers and promoters and, as I mentioned, an opportunity to have a wider impact on the market. In a similar vein, while a substantial number of the SEC’s enforcement actions in the space have involved alleged Ponzi schemes or offering frauds, with a continued focus on exchanges and trading platforms, I would not be surprised if, not before long, the SEC unearths more complex frauds involving market manipulation schemes or other market abuses. However, even well-intentioned market participants can be swept up in this and can find themselves the subject of enforcement attention as the SEC continues its efforts to increase industry compliance with securities laws and regulations. Seward & Kissel has been advising clients in financial services, corporate financing, and capital markets for more than 125 years. Our lawyers have extensive experience with STOs and digital asset offerings.