Juan Pablo has been involved in crypto and BTC since 2012 as an investor and then as a legal advisor to several leading crypto ventures. He has been recognized over his many years of practice as a leading practitioner in the areas of Corporate/M&A and Venture Capital. Cappello was recently named one of the “Most Influential Hispanics” by Poder magazine in the areas of science and technology. For 2019 US News/Best Lawyers named Juan Pablo "Lawyer of the Year” for his work in the highly complex area of Derivatives and Futures Law in Miami.
As an attorney, Juan Pablo was named Leading Lawyer of the Year in the Corporate/M&A – Latin America category by the ACQ 2017 British Legal Publication. He also was highly recommended as a leading attorney in Corporate/M&A in 2016 & 2017 by Chambers & Partners Latin America.
Juan Pablo in addition received the recognition as Top Attorney of Florida 2016 by Top Lawyers of Florida, and has been listed for 10 consecutive years in The Best Lawyers of America (2007-2017). He was honored as National Association of distinguished Counsel for his high standards of legal excellency in 2016.
Before launching the Private Advising Group, PA, Juan Pablo was a Principal Shareholder in the Latin American Group of Greenberg Traurig, an international 1,800+ lawyer law firm. Earlier in his career Juan Pablo was a partner in and a director of Patagon.com, which was sold to Banco Santander for a transaction value of over US$750 million.
Juan Pablo is also a well known entrepreneur and deeply involved in supporting venture capital in Latin America. He has co-founded several companies including (i) www.idea.me, the first Latin America crowdfunding site (ii) www.urbita.com, the leading social travel website in Latin America, and (iii) the LAB Miami, a 10,000 sq.ft. center for technology and innovation in the Wynwood Arts District in Miami.
Juan Pablo, a Chilean native, has law firm experience both on Wall Street and in Chile. Earlier in his career, he worked at Cleary, Gottlieb, Steen and Hamilton (New York) and Philippi, Yrarrazaval (Santiago) where he focused on international financings, securities offerings and joint ventures.
Hey, everybody. It’s me, Adam Chapnick, from the Security Token Academy. I’m here with super attorney Juan Cappello from the Private Advising Group. Thank you so much for joining us.
No, a real pleasure to be here.
Okay, we love talking to attorneys because you guys are definitely on the front lines, right?
We’re the ones screwing it up for everyone.
For everyone, yes.
Given that unique insight, we like to kind of ask you some of the key questions that sometimes seem obvious, but definitely are not that simple. One of those kind of questions-
Like really fundamental questions in light of last year’s ICO craze and this year’s security token craze, what really is the difference between the utility token and then a security token? Now in the light of all of the edicts from Jay Clayton or whoever. Where do we stand?
Well, where we stand is, I think utility tokens are somewhere in the SEC’s mind as likely as finding a unicorn out in the wild. I think the reality is, there is a real case to be made. You can structure a product and really keep it as a utility token but that nomenclature doesn’t work anymore. What you need to do is you have to say “Hey, am I pre-selling a product?” If I’m pre-selling sneakers or Spotify wanted to issue a spot and each spot was worth a song and it was consumable and most of the people consumed it, no problem. You can do general solicitation. You can have billboards talking about it. You can have 50 Cent tweeting about it. No problem.
But now is that no problem? Is that truly consensus? Or are we...it seems to be no problem?
I have 26 years of practicing securities law. I was a principle shareholder at a two thousand lawyer law firm and I ran a whole department. II can tell you if you work with a capable lawyer who’s actually been a securities lawyer most of his career, not chasing ambulances, not doing foreclosures a few years ago-
Not that we don’t love personal injury attorneys as well.
Right, but the point is yes, you can definitely structure something as a utility token. The issue is it’s not nearly as much fun because what you’re not going to be able to is raise money.
You can do a presale. But you’re not going to be able to raise money. You’re not going to list it on an exchange. The laws of gravity are going to apply to that product.
Got it, okay. So that’s clear. Now, in the work that you do, you work with a lot of the high profile players in our tiny, little, but soon-to-be enormous niche. What are you seeing as sort of the sticking points? Whether it’s regulatory or if it’s in the formation of a company. Or is it...maybe it’s even in the understanding in the public. Where’s are the sticking points?
I’d say the biggest thing is there’s been a lot of static or bad advice out there. You still have people making mistakes that are very predictable. It’s very difficult to predict who’s going to be successful.
But it’s very easy to predict who’s going to crash against a wall. The people who are today...U.S. based, the mind of management is in the U.S. and they’re trying to go to Switzerland to create a foundation to do an ICO, or they’re telling me, “Oh, I’ve been talking to this amazing lawyer in Malta who says we can just do it there.”
They’re missing the big point which is in the United States the Securities and Exchange Commission is a big old fashion. They have the Securities Act of 1933, the Securities in Exchange Act of 1934. Those acts have not needed giant amendments in 90 plus years. Or 80 plus years. They’ve worked just fine. Anyone who thinks today that the SEC feels that there needs to be whole sale changes to their rules hasn’t dealt with the SEC. What I’m seeing from entrepreneurs is smart entrepreneurs that are working with platforms like Securitize and understand compliance, et cetera, are really able to take advantage of this market. The people who are trying to position themselves too much as pioneers, they’re going to keep getting the arrows. Those arrows are going to be increasingly painful, whereas the settlers, the people who are going to do things in a compliant way, they really are going to get the land. They’re not going to have to worry so much about the arrows.
That is a great metaphor that I have not heard. It’s easy to see it that way.
Yeah, you don’t want to be a settler.
Well, you don’t want to be a pioneer.
Oh, you don’t want to be a pioneer.
Be a settler.
You want to be a settler.
Right, that’s right.
That’s really interesting. what about in terms of when you’re advising these sort of core companies that are the building blocks of the industry? Are they running into problems because of some issues with the laws or something?
Yeah, so say for issuers, for companies that want issue tokens or issue coins, the rules are fairly clear. We may not like the rules. We might be hoping that the SEC will get off this enforcement kick they’re on and move much more to a compliance. Right now, they’re trying to shut the bad actors down, and people like me are really betting that the SEC’s going to start using the crowd funding Regs. Rule A+, Rule CF, and say basically, “Hey you want to do the equivalent of a quasi ICO? Here’s a path to compliance.” For the issuers, things I think are fairly clear. For the people who are trying to create the infrastructure, the trading platforms, the settlement platforms, it’s a mess.
That’s the reality that you can spend hundreds and hundreds and thousands of dollars with the brightest minds who lobby the SEC et cetera, and you will get very inconsistent advice, and that’s not good for the industry.
No, right. We want clarity.
Yeah, and so people like...whether it’s Securitize or BRD, who’s a client of mine, BRD…people who are coin-based. People like that who are really trying to do things right and create smart infrastructure for this industry, they are really being hampered by a lack of clarity in the rules. But for the issuers, for the actual companies that want to issue tokens, I think the rules are fairly clear at this point.
Right, well I guess, it seems like we would need that clarity to come from the infrastructures so that everybody-
A hundred percent.
We need the tracks for the trains to ride.
The dirty secret is that there’s a lot of vested interest in terms of keeping the financial systems and the regulations as they are. Most intermediaries don’t love to be disrupted. One of the things that I think this industry in its exuberance has sometimes talked a little too much about how it’s going to dis-intermediate all…Yes, of course. What’s the first thing that those people do when they hear that?
They retrench. They do have lobbyists. They are very well connected with the SEC and a lot of other institutions in Washington. They’re sending a message that, “Hey, let’s move very slowly here, et cetera.” I do believe that this industry is going to revolutionize things and dis-intermediate a lot of the current actors, be it the large credit card processing companies, the large exchanges, et cetera. But those people are going to put up a fight. They’re putting up a fight now by just sending a message to the regulators that things need to move slowly. I think we’re going to see them retrenching even a bit more.
Given exactly what you’ve saying, what do you think the timeline is on that? They’re going to fight back. They’re going to retrench, but then they’re going to get beaten-
Let me be optimistic. Let me be optimistic. So optimistic I think for issuers in the SEC, in the crowdfunding Regs, in the SEC moving from its enforcement posture to move compliance, here’s a path to compliance, I think we’re looking six to nine months. I think that’s going to move reasonably quickly.
Oh, that’s very fast.
Yeah, very fast. I’m an eternal optimist.
Hey, I love it.
Hope springs eternal, which I do believe. I think on the regulatory infrastructure side, trying to get the rules clarified around exchanges, et cetera, that we’re looking at two plus years.
But that doesn’t mean the industry needs to shut down. The industry’s going to continue to evolve. There are going to be some either brave people who are willing to be pioneers or some foolish people, but you’re going to have people out there. Some people are going to take some arrows. The SEC I think is going to slowly give some guidance, and the industry’s going to evolve with or without the regulators. That’s what happened with the internet, and that’s what happened in a number of industries. People are finding it isn’t always better to ask for forgiveness than permission, but we’re still going to be seeing a lot of people with that kind of attitude.
Love it. Well, Juan, thanks so much for sharing your thoughts from your-
No, wonderful. Real pleasure.
Come back soon.
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