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Expert Interview


 
Mark Boiron: FisherBroyles Attorney Discusses Latest Enforcement Actions by the Securities and Exchange Commission

Marc Boiron

Marc Boiron is a partner in the Corporate, Technology, FinTech and Blockchain practice groups. Marc represents leaders in blockchain and other distributed ledger technologies and digital currencies that operate businesses abroad number of industries, including ad tech, e-commerce, energy, healthcare, mobile apps, music, payment systems, real estate, and video games.

Before joining FisherBroyles, in early 2017, Marc founded and led the Blockchain, Smart Contracts and Cryptocurrencies practice group of Rutan & Tucker, LLP. Combining Marc's strong corporate and securities law background and his near obsession with blockchain technology, he built a practice advising companies on a breadth of issues, including ICOs, STOs, smart contracts, cryptocurrency funds, cryptocurrency exchanges, and other cryptocurrency laws. Marc also advised early-stage companies in traditional and crowdfunding financings, using exemptions like Reg D, Reg A+, and Reg CF.

Marc was trained in Delaware law at Richards, Layton & Finger, one of the most recognized law firms in the country by other lawyers. He represented companies like Allergan, Dell, and General Electric in a broad range of transactions.

Mr. Boiron is often invited as a speaker on issues relating to blockchain technology, especially to educate on constant developments in blockchain and ICO regulations.

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Transcript


 

Adam Chapnick:

Hey everybody it's me again Adam Chapnick with the Security Token Academy. Thanks for being with us. We are here at the 3rd annual Start Engine Summit here in Santa Monica California. And I am excited to be joined by partner at Fibrosclerosis, Mr. Marc Boiron. Thanks for being with us.

Marc Boiron:

Thank you for having me Adam.

Adam Chapnick:

Alright, so we don't get to talk to a lot of attorneys who have a little bit of experience in this space so it's fun to have you and also Adam Chapnick from your firm, we've had on before. It's always fascinating to hear how an attorney ends up as a Blockchain enthusiast. How did you come to be one?

Marc Boiron:

Yeah so it was 2015 got interested in the technology and I guess I'm one of those nerds who just got obsessed with the technology.

Adam Chapnick:

We love nerds that are obsessed with technology.

Marc Boiron:

The sad part is I'm slower than most, it took me about a hundred hours to really figure out Blockchain. But early 2017 I was kind of like you know what, I love it, why don't I start practicing in this area? So, essentially since second quarter 2017 I've spent my entire time working with companies on... in the Blockchain space.

Adam Chapnick:

Just totally Blockchain?

Marc Boiron:

Nothing else

Adam Chapnick:

What was it about Blockchain that really bit you with the bug? What was it?

Marc Boiron:

It's just the grandiose idea of what it's going to change. And then when you get down to it on a technical level, and I do not understand cryptography.

Adam Chapnick:

Okay.

Marc Boiron:

But I understand every other part of it. And it's just like this is the coolest thing the way it works, and decentralized nature of it the fact that you don't need an inter meteor it's just where else do you see that? And the answer is nowhere. So it's just super neat.

Adam Chapnick:

I love that. Okay, so now that you've been in it a little over a year like full on two feet in, knee deep, where do you see the sort or issuers or your clients coming from? Are they trending in one certain kind of niche or vertical or is it just a shotgun all over the place?

Marc Boiron:

Yeah, I think many people know this but it's changed right. So from a year and a half ago it was the startups that were all looking to sell a utility token or something similar.

Adam Chapnick:

Right.

Marc Boiron:

And then since then you've kind of seen an evolution and now you see more [inaudible 00:02:05] companies. I've had public company that I've represented, kind of working through the process. From an industry perspective you've also seen a change right. So utility tokens, kind of the whole gaming industry is just ripe for change. But then when you move to security tokens it's kind of a little bit of a different focus. Real estate starts becoming something that's a whole lot more interesting and it's simple tokenization of equity. And the other trillions of assets that exist out there. And suddenly it can be applied to anything.

Adam Chapnick:

So, from your part are you seeing more of anybody in each of those used cases emerging? Is it like a preponderance of real estate? Or is it people that are really taken the tokenization of hard assets like dividing up... artwork or something? Where are you seeing it come?

Marc Boiron:

I'd say it's a pretty equal split.

Adam Chapnick:

Yeah.

Marc Boiron:

I mean equity's predominant for the simple reason that it's equity so its predominant. So whether it's tokenize a fund or tokenize a company, it's equity, it's where people have historically sold so you're going to see the most of that.

Adam Chapnick:

Okay.

Marc Boiron:

But in terms of assets, real estate and then just any other real property. I mean the whole... the second Crypto Kitties kind of came alive, people started looking to apply that to real assess, the same idea. So fictionalizing art and so there's a ton of that going on as well. But I think that we're at an early stage in that sense. So you want to tokenize real estate and I would say you need to use the brute force approach right now. So you need to stick that real estate in an entity and then tokenize the entity. It's not as elegant as saying I'm going to tokenize the deed, and then I'm going to have the deed transferred on the Blockchain. We're just not there, and we're not going to be there for years.

Adam Chapnick:

For years you think? Okay. But that's interesting because a lot of people don't make that distinction. That we say we're going to tokenize real estate, well you can't literally tokenize the real estate. There's a thing that must be divided and you're pointing out that what were people doing the special purpose vehicle or something and then dividing that up and it's a little more old model, but with a new way of doing it I guess.

Marc Boiron:

Yeah, and obviously all the interesting ways that we know in turns of the increase liquidity you get, the getting rid of certain centralized intermediaries. So there is all those benefits that still exists, it's just not as elegant as directly

Adam Chapnick:

As we hope.

Marc Boiron:

Tokenize that asset.

Adam Chapnick:

Right. Soon though, someday. Okay so what about things like debt? People talk about that as being an obvious candidate, are you seeing that happen yet?

Marc Boiron:

I would not... I have not personally seen that.

Adam Chapnick:

Okay.

Marc Boiron:

If you hear about it being done, a little bit here and there and it makes sense especially when you think about kind of the automatic distribution of interest payments, things of that nature it makes a lot of sense. You've got some advantage under securities laws in terms of how the exchange act might be applied to debt securities versus equity securities. So there's definitely advantages to it and it's becoming more and more common in terms of at least occurrence in discussions. I think we're going to start seeing it pop up a ton.

Adam Chapnick:

Got it. So when it comes to let's say companies that are looking just to raise capital, are they coming to you or talking with you about just basically we know we want money, we hear about this security token thing, how do we do it? Is that the kind of approach or are people a little more savvy, or is nobody doing that?

Marc Boiron:

I think I have the benefit of having been in the industry just a little bit earlier than many attorneys.

Adam Chapnick:

Yes.

Marc Boiron:

Not as early as my partners they're 5 years ago. But early enough that I have connections to what I'd say more of the old timers who are going to be sending me clients who really are interested in the Blockchain technology itself. And so we're at a point where we know that we have to sell security tokens cause we're selling investment contracts.

Adam Chapnick:

Right.

Marc Boiron:

But in a lot of instances we have a second token, and it's a utility token that's going to live within the network or is going to be a stable point as we know they getting extremely common.

Adam Chapnick:

Yes.

Marc Boiron:

Because they actually need it in the network. And in that case you need the token and so it's going to exist.

Adam Chapnick:

That's interesting, on our show we've heard from some founders who are doing the dual token thing and we were curious whether that would become sort of the standard operating procedure. And whether that would survive SEC scrutiny. But you're saying that is becoming sort of maybe not common place but...

Marc Boiron:

Yeah, I think you're seeing fewer utility tokens in that area than you did before and the simple reason is now you have no reason to half that utility token unless it's a true utility. So clients are being pushed to really think about this. Is this a true utility or is it not? Which is fantastic.

Adam Chapnick:

That is great.

Marc Boiron:

And so, you're really getting quality companies in the Blockchain space doing that. The other ones that you're getting is kind of the pure payments

Adam Chapnick:

Yes.

Marc Boiron:

In which case you're creating a stable point and I often say "You know it's really complicated on a money transmitter level creating a stable point, maybe we should look at what exists out there already

Adam Chapnick:

Interesting.

Marc Boiron:

and see if we can kind of solve with what's out there."

Adam Chapnick:

So, when you say it's complicated do mean to architecturally or do you mean legally from the legal framework of all the liability you have for being a money transmitter?

Marc Boiron:

Sure. I'd say it's from a legal aspect. I think people have heard about that OCC charter that Fintech charter that's been kind of floating around the states are suing the OCC over it. Until that actually exists or a similar solution you're going to most of the states to go get your money transmitter license and it's a pain. You've got the added part that as a true crypto enthusiast, a fiat-backed Stablecoin isn't that interesting to me. I want some kind of algorithmic Stablecoin. That's when it gets really interesting, when you don't need anything back in it's truly decentralized token that exists in your network and that's kind of... that's when it gets fun again.

Adam Chapnick:

Interesting, okay. Alright, so again you guys obviously as attorneys with expertise you see the outcomes of things that a lot of people only see the imaginary ideal of. So, getting down to real brass tacks, what does it take for someone who just knows they... they have a company, they may or may not even be in Blockchain, but they want to raise money and they want to use this new mechanism for doing it. Is it A- better for everyone, if it's not better for everyone, who's it better for and how hard is it?

Marc Boiron:

I think the number one thing is remembering how early we are.

Adam Chapnick:

Yes.

Marc Boiron:

In the SCL ecosystem. And so for that reason it's going to be harder than just a traditional equity raise. And in the short term there's probably going to be fewer benefits than what you're going to see in a year from now.

Adam Chapnick:

Okay.

Marc Boiron:

And so the approach that I typically take with clients is I say First of all, we wanna raise capital now let's think of what that's going to look like. So, by that we've already excluded anything that's kind of asset backed, real estate cause we're looking to just raise capital for equity or something similar. So then it's the question do you want equity or are we looking at some alternative like a revenue share or a profit share that we're seeing a lot of. Things of that nature. And then I think once you choose that there's different approaches. Which is if you're doing a revenue share or a profit share then you're actually selling again that revenue share or that profit share and you're selling a token that represents that interest. If you're doing an equity backed token, all you're doing is you're selling equity. And so what I try to tell a lot of clients, let's remember that were going to tokenize this, but let's focus on getting that equity issue. Cause that's all we need to do. And then on the back end, we're going to say hey we don't like this XCEL spreadsheet as a stock ledger, let's go put it on a Blockchain. And by then we're going to have more elaborate solutions that exist in terms of trading tokens in the secondary market. So we've already got some great platforms out there. We've got Securitize, we've got Securrency, we've got Harbor that's going to go live soon they're doing a fantastic job. But we're also really grueling in the technology. And how they are going to develop and how new players are going to come into the ecosystem is something we need to figure out. And so, delaying the actual tokenization and the decisions that you're going to make with respect to what platform you're going to use is an important thing to do. But the benefits of having a security token are substantial. The biggest question being what is liquidity going to look like and when is it going to be there?

Adam Chapnick:

Yes.

Marc Boiron:

You've got a lot of companies that are starting to look at solutions for market makers in the secondary market which is going to be a very important piece to this. We're getting a lot of supply that's coming into the market in terms of issuance, when can we get the demand there? And that's where the institutional investors come in that everybody's talking about. And that's kind of the big question mark. So my view is let's tokenize this thing, but let's just get the equity out there first and then we'll do the tokenization when we have more information.

Adam Chapnick:

Interesting. That is such a specific solution and answer, I love it. So what about from a brass tacks perspective of the people who are going into tokenization right now, what are the friction points or the maybe regulatory... lack of clarity that needs to be addressed before more people who should be doing it, are doing it.

Marc Boiron:

I think we first need to look at what exemption are we relying on, let's assume we're not registering the security.

Adam Chapnick:

Right.

Marc Boiron:

Reg A+, I think it's well known, nothings getting qualified and so we know of itself is the issue. But when you look beyond that I always say all we're doing is issuing a security. This is not complicated.

Adam Chapnick:

Right.

Marc Boiron:

We've been doing it for many, many years. So let's just focus on issuing a security. The complicated part now gets to what do we do with our ultimate goal which is liquidity and secondary market training.

Adam Chapnick:

Right.

Mark:

That's where it's complicated. And the reason it's so complicated is not because our rules have changed but it's we haven't really taken advantage of them.

Adam Chapnick:

Right.

Marc Boiron:

In the way that we're trying to right now.

Adam Chapnick:

Interesting.

Marc Boiron:

And so that's where we have those important platforms that are being developed to control that.

Adam Chapnick:

So, can you be specific about what are the rules that haven't changed that we haven't taken advantage of with regard to liquidity.

Marc Boiron:

Yeah, so let's take rule 144, keep it simple.

Adam Chapnick:

Okay.

Adam Chapnick:

We all know it, we totally know rule 144.

Marc Boiron:

So, rule 144 at its core is essentially saying... let me back up. You've done a Reg D offering. And a Reg D is going to be subject to rule 144.

Adam Chapnick:

Okay so hold on, that's accredited investors only, none of the unwashed messes as they were known, no main street.

Marc Boiron:

Exactly.

Adam Chapnick:

Okay.

Marc Boiron:

So now we've done that and then the question is when can we start trading those, we're just transferring them in the first place.

Adam Chapnick:

Right.

Marc Boiron:

And that's where rule 144 applies. And essentially what it says is hey if you don't wanna be treated and an underwriter which has very specific rules as to what you can do

Adam Chapnick:

Right.

Marc Boiron:

You need to follow rule 144. One of those requirements is you need to hold those securities when you're talking about a non-reporting company. You need to hold them for twelve months.

Adam Chapnick:

For a year that's right.

Marc Boiron:

Then the question is, are you an affiliate, or are you not an affiliate. Are you connected to the company in a way that deems you to be an affiliate. If you are an affiliate, those transactions are things that historically have almost never been done in private markets. And when they are, they're done in a very private way.

Adam Chapnick:

Yes.

Marc Boiron:

You've never had a time really historically where somebody has said I want to publicly sell as an affiliate my private shares.

Adam Chapnick:

Right.

Marc Boiron:

You see a little of that. You've got companies like SharesPost for example that creates secondary markets. But…yeah exactly. But you don't really see it on a wide scale. And so now the answer is how do we do this on an exchange in a way we've never done before? And that's where the rules are being applied in new ways. And then there's things that people just haven't heard of, rule 4A7 for example.

Adam Chapnick:

What's that?

Marc Boiron:

There you go, that's one that everybody knows right? So rule 4A7 essentially says you can go ahead after 90 days and transfer a private placement to another accredited investor, as long as this laundry list of things exists.

Adam Chapnick:

Okay.

Marc Boiron:

Some of which is financial information about the company, things of that nature. But then it can't be done in a public offering. And so the question is okay well within 90 days, but before the 12 month period from rule 144 is up, can we create a mechanism for people to start trading in a private way?

Adam Chapnick:

Right.

Marc Boiron:

All these issues that frankly we just haven't been that focused on.

Adam Chapnick:

Right, fascinating.

Marc Boiron:

Now we're dealing with a token on top of it.

Adam Chapnick:

Right, which is a whole 'nother layer of complexity. Amazing, okay. So what about for you guys, you're a relatively small firm, but you're growing quickly and you have a couple of very cracked specialists at least I only know two of you. What should we expect out of you guys? What do you think is going to happen in the next 6-12 months with your firm? How do you expect to grow, where do you... where will you be specializing if anywhere?

Marc Boiron:

Sure. So we're actually bigger than many people realize we have over 230 attorneys.

Adam Chapnick:

That is big.

Marc Boiron:

Across the country, about 20 of them are in our Blockchain practice and it's one of the core focuses of the firm is growing that Blockchain practice. And the simple reason is it's an exciting area that we're good at, we have many attorneys who have been in this space for a while.

Adam Chapnick:

Wow, so I didn't realize you had twenty people doing that. That is a lot more than I thought.

Marc Boiron:

Yeah, I think we're probably one of the bigger practices in our state.

Adam Chapnick:

Yeah, so where do you think that's going to go in the next 6-12 months. What do you expect to see from your firm?

Marc Boiron:

Hopefully we've become the dominate firm in [inaudible 00:15:31] no I'm just kidding with that. No, I think we're going to just kind of continue to evolve. Which is I think as an attorney in this space, in many respects you're one of the first people... or entrepreneurs that other companies are talking to. And I think one of the focuses we have is on understanding the ecosystem and knowing the ecosystem in a way where we can really benefit entrepreneurs. So that's understanding inssuence platforms, understanding secondary markets, understanding the interesting investors in the space. Knowing all of that, connecting all of those dots so that our companies that we're representing can be successful.

Adam Chapnick:

That's great, well we always love talking to you guys and hope that you'll come back soon and often.

Marc Boiron:

Thank you for having me.

Adam Chapnick:

Thanks for joining us.