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Gautam Gujral

General Counsel and Co-founder of Vertalo

Gautam Gujral is the General Counsel and Co-founder of Vertalo, a Liquidity Enablement Platform for Security Tokens. Prior to his current role, Gautam worked at Credit Suisse. As a Managing Director at Credit Suisse, Gautam represented the Prime Services department on a senior management level and as a member of the Prime Services Management Team. Prior to joining Credit Suisse, Gautam was a Special Counsel at the U.S. Securities and Exchange Commission’s Division of Market Regulation. At the SEC, Gautam was awarded the prestigious Capital Markets Award as a member of the “Exchange Team” responsible for proposing far reaching changes to broker-dealer and exchange regulations . Gautam earned his J.D. at Georgetown University and his B.A. at the Colorado College.

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Vertalo is a liquidity enablement platform that was founded by a team that was frustrated with the difficulty of complying with and managing wallet and KYC data for its own security token holders. So we decided to build the system ourselves. Informed by our own experience, and by our team’s knowledge of securities law, Vertalo built a platform designed to take the pain out of managing a crypto cap table.

The Vertalo platform is designed to be used by issuance platforms, issuers, broker-dealers, ATS’s, exchanges and the market participants that integrate with and depend on them, like Custody platforms and KYC/AML providers. Vertalo’s easy to use system makes managing security token investor data easy, and helps security token investors access the liquidity providers that they need.

 

Oscar Jofre

Co-Founder, President/CEO of KoreConX

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide.

Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, security token offerings, equity crowdfunding, STO, TAO, ICO/ITO, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Blockchain, STO, TAO, ICO, Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

He is a member of the Crowdfunding Intermediary Regulatory Advocates (CFIRA) in the USA, and a contributing author to The Fintech Book, the world’s first crowdsourced book on Fintech globally. He writes for Sharewise, Locavesting, Equities.com, Business.com, Crowdfund Insider, Crowdfund Beat, Bankless Times, and Agoracom.

Oscar has been recognized as one of the 10 most influential Hispanic Leaders in Canada. In May 2010, Oscar A. Jofre Jr. was recognized by the Rt. Hon. Stephen Harper for his accomplishments.

Oscar was awarded the Vision 2012 Business Man of the Year by the Toronto Hispanic Chamber of Commerce on September 2012.

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KoreKonX: Creating the world's first highly-secure permissioned blockchain ecosystem for fully-compliant issuance, trading, clearing, settlement, management, reporting, and corporate actions for tokenized securities worldwide. KoreConX is the all-in-one, AI-based, global blockchain platform that manages the full lifecycle of tokenized securities to ensure compliance with securities regulation and corporate law. Connecting companies to the capital markets and secondary markets to facilitate access to capital and liquidity for private investors.

 

Yoel Goldfeder

CEO or Stock Transfer, LLC

Yoel Goldfeder, Esq. is a licensed attorney with twenty years of corporate and securities law experience. Mr. Goldfeder has represented both small and large companies and investors throughout his legal career dealing with mergers and acquisitions, joint ventures and corporate financing, including both public and private securities offerings, specializing in PIPE transactions and reverse mergers. Mr. Goldfeder obtained his Juris Doctorate from Georgetown University Law Center, after receiving a BA. in Accounting and a B.S. in Political Science from Brooklyn College. He is admitted to practice law in New York and is also an Adjunct Assistant Professor at Baruch College, teaching courses in business law and business organizations. Mr. Goldfeder is also currently a member of the Legal Committee of the Securities Transfer Associate. In addition, Mr. Goldfeder has written on many securities industry topics including his recent article titled “A Transfer Agent’s Blockchain Manifesto.” Mr. Goldfeder has also participated on multiple panels discussing financing under Regulation A+ and often consults with clients involved with token offerings, IPOs and complex securities issues.

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Scott Purcell

CEO & Chief Trust Officer, Prime Trust

In 1987 Mr. Purcell founded Newport West Custodial Services, which he built to $1 billion AUM and sold to Commerce Bank of Newport Beach, where he then served as the bank’s Senior Vice President in charge of the trust department. He is the Founder and CEO of FundAmerica, a financial technology firm providing software and back office services to banks, trust companies, broker- dealers, investment advisers, securities exchanges, SEC registered transfer agents, and large issuers (primarily real estate companies). FundAmerica’s software enables escrow management, payment processing, PATRIOT Act compliant AML, transfer agent and broker-dealer compliance for professionals engaged in activities pursuant to Titles II, III and IV of the JOBS Act. He is a founding Board member of the Crowdfunding Intermediary Regulatory Association (CFIRA) and the author of the book “The Definitive Guide to Equity and Debt Crowdfunding” as well as the “Industry Best Practices for Funding Portals”. He is the author of “BD and Registered Portal Regulatory Mechanics” and has been an active editor and co-author of numerous other industry papers. He also started a fixed income trading firm, a clearing broker for institutional investors and published a book "The Guide to Fixed Income Investing". In 1994 he founded Epoch Networks, one of the world's first internet service providers and, as a Board member of the Commercial Internet eXchange often represented the nascent industry before Congress and the FCC. In 1999 he founded OnAir Networks and built the first music storage and streaming services for Sony and Universal. During this time, the Recording Industry Association of America retained him to advise them on internet technology issues and copyright matters and to represent the recording industry before Congress as their technical advocate for intellectual property rights.

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Prime Trust is a chartered Nevada trust company that as an SEC-Qualified Custodian provides custody of cash, tokens (aka “coins”), stocks, bonds, private business interests, and other assets. It also provides compliance and specialized services relating to funds processing, AML/KYC compliance, and transaction technology for the new digital economy. As a blockchain-driven trust company, its mission is to provide portals, platforms, brokers, real estate syndicators, and direct-issuers with best-in-class solutions to seamlessly meet the needs of their securities offerings and of exchanges and secondary markets. As a trust company, Prime Trust provides a wide array of account types, including simple custody, IRA’s, asset protection trusts, health savings accounts, and college savings solutions, all of which are designed to hold any asset class.

Transcript


 

Guatam Gujral:

Well we thought that since this is going to be a conference about security tokens that it would be appropriate to talk about custody and transfer agents that play a huge role in the regular securities market today.

We have put together this panel of transfer agents and custodians to enlighten you a little bit about what these roles are that these organizations play in today’s market.

I was wondering that perhaps we can start with you, Scott, talking about what does a custodian do and why is there a role for custodians? It seems that in a trust company like yours, you’re based in Nevada and you have a license from the state of Nevada to provide these services, and it seems to me that there’s a huge role for you guys to play. You’re already custody, equities, bonds, cash. What is it that makes your role so essential in this token economy?

Scott Purcell:

Well, there’s really two things that we provide in terms of custody. First, as a trust company, we are tasked by regulators withholding and protecting a wide variety of asset classes: cash, real estate, stocks, bonds, mutual funds. And of course alternative assets: private business interests, partnership interests, royalty interests, and securities tokens.

The reason it’s really important is two-fold. One, for SEC reporting entities like hedge funds, venture funds, investment advisors, they are required by regulation to hold all of their assets, not just digital tokens, stocks, bonds, cash. All of their assets must be held with a qualified custodian which, under SEC rules, is either a bank or a clearing broker. That’s it.

No one else meets that designation. Trust companies are, by rule, a bank. That’s why trust companies, like Prime Trust, hold those assets for broker dealers and hedge funds and others.

Aside from that, the people who are required to hold all of their assets with qualified custodians, there’s also a convenience factor. Most people, if they own stocks or bonds don’t have a whole bunch of stocks or bonds and pieces of paper in their drawer at home.

They have an account at E-trade or Schwab or Robinhood or whatever and in doing that, they get a single statement with all of their assets. Likewise, in this case, people who are investing in multiple offerings, multiple ICOs, STOs, I had a family office I was talking to the other day, they’re not required to file by qualified custodial rules, but the guy said, “You know, we’ve got all this money we’re putting, we’re buying all of these securities tokens on secondary markets and in original and we’re juggling a whole bunch of wallets. Can I just give it all to you and you put it on a statement for me and I don’t have to think about it?” And the answer is yeah, that’s exactly what we can do.

It’s both regulatory and convenience. Then throw the convenience into allowing exchanges to be able to conduct transactions within our ecosystem so there’s no risk, everything is kept in cold storage and we can settle immediately, then it starts helping this entire industry come to life based on what custodians do.

Guatam Gujral:

There was something very important that was in there which is that custodianship allows for institutional players to basically enter this space. Without custodians there are no institutional players like mutual funds or hedge funds coming into this space.

Do you see a lot of inquiries from those types of players about the services that you provide today? Do you see a lot of interest coming into this field?

Scott Purcell:

They’re still coming up to speed. The largest institutional players, the problem is usually, and look at JP Morgan Chase, great organization, the CEO is adverse to a lot of things but they have teams of people in blockchain and doing things.

In many organizations, even some of the institutions, you’ll see the compliance people and broker dealers as well, you’ll see the compliance people really dragging things down because initiatives.

The last panel they were just talking about how in 2018 things are getting going, 2019 it’ll be accelerating. This is going to be a multi-year process and I totally agree with that. It’s going to take a while.

Guatam Gujral:

If I were a large holder of any equity of any company, I would be subject to short-swing profit rules. Which means that if I sell these securities within a period of time of buying them, I can basically pay a fine for doing so. How would a custodian be able to help out a player such as that?

Scott Purcell:

If you’re going to commit a regulatory infraction then we’re doing no different than that person’s clearing firm would be doing. We’re just accepting buy and sell orders.

The thing that a custodian helps with and that people aren’t thinking enough about is people are helping with a lot of people that are within our ecosystem, like Paulina from Harbor and Republic and Coinlist and StartEngine and great, great, companies helping people get their securities sold, tokenizing securities and selling. But if people hold these themselves in their own wallets, in their own name, and if they get them listed on an exchange and they start trading, there’s a very good chance that you’re quickly going to hit 2000 or more shareholders or securities holders of record and that will trigger 12(g) registration with the SEC.

Unless you’re a multi-billion dollar company, you likely cannot afford the cost of 12(g) registration. If the issuer has all of their securities held with a custodian, then they could have millions of beneficial owners but the shareholder of record count for SEC rules is one. Just the custodian. So by using a custodian you can avoid 12(g) issues which is really important actually and not being talked about enough.

Guatam Gujral:

Yoel, you are with Restock and you provide a separate set of services that are also very important for the industry and Oscar’s firm does as well. I was wondering whether you could explain what the role of a transfer agent is. Specifically, with regards to a world where every security token will be held in a wallet that belongs to a person. Presumably, the issuer would know who that wallet owner is.

Yoel Goldfeder:

It’s actually very interesting when Scott just mentioned that people don’t hold paper. I come from the traditional securities industry, practicing securities law for too long.

We’re registered with the SEC as a transfer agent. We deal with a lot of traditional companies that haven’t moved onto the digital side that currently exists, let alone tokens.

We still have companies that insist on issuing paper stock certificates although we say, “Don’t do that. It’s a mistake.” Because here are technologies in place that let you avoid it. Do you act DRS through the DTC systems? But that’s where we’re coming to and we see our role as trying to bridge the gap.

Try to explain to the industry, and Scott talks about avoiding 12(g), if you’re required under 12(g) and we see people putting these caps in, if you pass that threshold, the SEC requires you to retain a transfer agent.

The SEC believes in this trusted advisor. They believe that they need somebody overseeing your market which is why they have custodians. If you’re not at that level, you have to have a transfer agent to manage your shareholder records.

What that means in a token world is completely different than what it means in a traditional securities world but the role is still a necessary function in order to operate as a compliant token.

Oscar Jofre:

Wow. We both have the same to say, right. It’s great.

I agree 100% with you and Scott we all know each other for ... we took a different approach. We saw the tokenization as being, it is the new coming of democratizing capital if you heard David Weild and others speak.

The issue of being a transfer agent, we have this big responsibility. We use the word custody and somebody said, “Well, we can make that into a robot or a technology.”

Well, I would like to say at this moment that’s just not going to happen. There’s responsibilities that we have. So therefore at KoreConX we created a fully globally compliant security token that as a TA, as a transfer agent, custodian, we could meet our obligations not just in the United States but other countries that we operate in. Because the punishment that we would have, alongside with the issuers, and whether they’re breaching the number of holders and all that, it would be severe on both ends.

I’m sure many of you are sitting in the room and listening to what Scott’s saying, well if you exceed 2000 holders, you’ll breach that 12(g) and so forth. Some will say, “Well, wait a minute I can write that into a smart contact, it’ll never happen.”

Well, technology is fantastic but we all know technology can be forked or can be hacked and so forth so those uncertainties, that’s where the custodians come in. We have to be able to manage all that.

Keep in mind as well that we’re not just managing the security element that’s in the TA. Obviously, Scott manages more. But we’re also managing the book of records for the company, we’re doing all the other corporate actions.

Yoel will tell you, there’s just other obligations the company needs to meet. Your reporting, your annual meetings with your shareholders, however you do that, that’s where your transfer agent partner in this ecosystem plays out.

And none of these platforms like StartEngine, Republic, or others, would have survived if a lot of these companies, like the three of us, have become innovative enough to get plugged in and tokenization is not going to change that.

Tokenization is going to excel quite well but it’s going to need to understand that it’s not going to replace this element of the securities requirement, not only in the United States, I want to be very clear. Not only in the United States. It’s an obligation in Canada, it’s an obligation in Australia, it’s obligation in many countries around the world, not just for accredited but also non-accredited investors.

Especially when we’re selling securities tokens in different jurisdictions, it’s important to keep that in mind.

Scott Purcell:

Remember that the three of us have this conversation that a lot of people in the digital economy are saying, “Well, we don’t want to use a transfer agent.” Well, you don’t have a choice if you’re a Reg A or if you’re a full-filing or if you go broach 12(g), you have to use a transfer agent, it’s by regulation.

And, “Well, it doesn’t make sense. I shouldn’t have to do that.” It doesn’t matter that it doesn’t make sense.

Yoel Goldfeder:

Here’s the reality, so I have a friend who used to be on the board of directors of FINRA and we bumped into each other in a coffee shop and he’s advising broker dealers who want to form an ATS. I say, “Let’s talk.” He goes, “Well why do I need a transfer agent? The records are mutable.”

Everybody knows that’s a good buzzword in the blockchain. I go, “Yes. That may be true, but one, it’s required by the regulation, and two, the transfer agent brings a role that we’ve all come from The JOBS Act era, the crowdfunding, Reg A. We’ve taken companies public through Reg A. At the end of the day, there’s still an investor.”

Probably not institutional, maybe mom and pop, maybe it’s own securities maybe have it. We took a company public and we had thousands of individual investors who all of a sudden, “All right, I have this investment, now what do I do?” And that’s one thing that we do is we work with the companies to be able to interact with these investors to educate them and explain the process, “All right, now you’re a securities holder, what would you like to do? How do you do it?”

That’s kind of a role that we take as well in actually interacting with the shareholders on a regular basis.

Oscar Jofre:

Constantly, right? You’re constantly doing that. And I applaud the companies that actually bring on people that will act as their investor relations liaisons between themselves and the company’s Reg A+ issuers.

I’ve seen quite a bit. I got a few of those clients that they’ve embedded their shareholders as part of their business but I am their transfer agent. I am the custodian. It’s all digital, just like Yoel is and many, they log into my platform. They don’t even see a physical certificate, I already tokenized them from the day they started with us.

I mean it’s all the hype about blockchain but the reality, the average day investor who invested $100, $1000, or so forth, does not see the actual blockchain himself. All they care about is that if anything happens, my goodness, what about beneficiary owner or joint ownership? After they make the investment for $50 they go, “Oh my god, I want this under my husband and wife.”

All of these items and then all the corporate actions behind it. Here is something that people must always remember, a security is not definitive until the board of directors of a corporation approves it.

A board of directors. An entity has corporate directors that authorize the issuance of capital, whether it’s a security or anything, and they’re the only ones that can accept it. One thing is accepting the money and then giving some. But ultimately, the board of directors resolution and they’re the only ones that can actually indicate what can and cannot happen.

That direction needs to be managed. One word I’ve heard a lot in the last few days is that we’re kind of the people that we want to keep things the way they are. I cannot tell you how much I need to tell you this that it’s exactly what we don’t want. We’ve been trying to change this from 2011?

Scott Purcell:

Yeah.

Oscar Jofre:

2011. Look at Howard Marks, one of the few people. Republic is starting to put a platform on line when people said it would never work and it’s working. So tokenization needs to understand that there is a framework there that understands how to do that and protect investors.

Investor protection must be our number one priority today for tokenization to occur. And tokenization is going to survive and get to the institutional side, 100% guarantee it, I promise you that, if you can bring the custodianship element.

It will never come, never! It will never come, ever. And if you think that the crowd has more money than the institutional side, you only have to listen to David Weild’s keynote. The trillions of dollars are sitting at JP Morgan, Goldman Sachs, they’re sitting at the banks. And that money isn’t going to flow until they have trust. They need to have that trust.

Guatam Gujral:

We’re talking now about companies that are publicly traded, Reg A or even differently registered, just regular IPO, but what about private companies?

In the past, in the recent past, with ICOs, issuers issued these tokens under an agreement called a “SAFT” which, in our company, stands for a simple agreement for future trouble.

Oscar Jofre:

Thank you!

Guatam Gujral:

Now, with more companies choosing the Reg D route or private placement route and actually wanting to issue the tokens directly to the holders, there’s a problem because in the past you got a piece of paper, like this, and it said, “Any transfer of this security shall be null and void unless you come to me, the issuer, first, you deliver an opinion of counsel that’s reasonably satisfactory to us.”

In the U.S., right. So now you have a Reg D token that’s issued to anybody here, right, and the issuer has to make sure that that person doesn’t transfer it to another person who’s not accredited. How do your roles help an issuer with maintaining that process?

Scott Purcell:

It generally starts with the companies who are helping them right the smart contracts because you can build Rule 144 restrictions into the smart contract.

If you’re doing it as a Reg S, a lot of people run a Reg D and a Reg S concurrently, so the Reg D for U.S. investors and the Reg S for the rest of the world, and there’s a lot less restrictions on the Reg S. So you’d have to write that logic into who might want to transfer it and where’s it going.

The reality is that obviously if they’re using a custodian then we’re in charge of enforcing those restrictions that are on the securities. If they’re using direct registration with a transfer agent, then the transfer agent will enforce that. And I won’t take words out of these guys’ mouth.

Oscar Jofre:

The only thing I was going to add, all our business is private. I don’t do public companies. If I do, that’s where ... I draw the line at the private companies. I am all about the private world.

My Reg A+ clients are private, they want to be private, but guess what? Shareholders can trade. Shareholders can trade. They can start trading the minute it closes. That’s the holy grail of the regulation.

The nice thing about this regulation in the United States, it’s available to Canadian and U.S. issuers or a domiciled corporation, and they can sell their securities to anybody in the world.

Yoel Goldfeder:

I’ll say that we’ve taken a different approach. We all saw what was going on in 2017 and a little bit in the beginning of 2018. I always question, I wonder, I said, “All right they’ve all met these exemptions, they’ve issued restricted securities, did they really build in the restrictions in the smart contract?”

And I wonder. And I said, “Forget about what happened in 2017, I want to see what happens six months, a year from now, when people said, ‘All right, I bought it and after the traditional securities regulations, they’re unrestricted, now I want my liquidity.’”

What’s going to happen to those shareholders now? The SEC and people who are filing now are going back to say, “All right you want to be registered now, you want to do a Reg A now. But, let’s see, did you comply when you did your previous offer?”

Oscar Jofre:

Your previous, yeah.

Yoel Goldfeder:

And that’s going to be an issue for those who entered into the ICO space because now we’re a whole new space. But those who entered into the ICO space, and built it out and did these offerings that weren’t really compliant, the SEC is going to go and look back at that. And it’s going to be interesting to see how those convert into the real marketplace.

Oscar Jofre:

It’s funny. I was just speaking with colleagues at Templum in ATS, a secondary market here in New York, and I was telling him there’s a number of issues.

And he goes, “That’s all great, Oscar. The front-end, they raised their money. I’m all excited about that.” But to your point, we need to look back exactly how that money was raised because the consequences in the ecosystem are that if anybody along the way did not properly constitute an offer, improperly, it just has a negative effect all the way through.

We obviously all take our responsibilities very high and we apply technology to make it happen. This doesn’t mean that you slow the process down. It’s that once you understand what it is and you apply a technology that can make that happen, then you have something that you can actually rely on. But it does not take away the role.

The role is a physical role, a physical entity, because all of you in this room if you get mad or you get angry, what do you do? You call your lawyer and you sue. You want accountability. All those ICOs that lost billions of dollars, where’s your accountability? There is none. They can all say “Oh, the free trade and decentralization” but at the end of the day, none of these people have a single claim anywhere for any of that money that they’ve lost.

In securities world, you have a claim. So the blockchain traditionalists don’t like to hear that.

Scott Purcell:

I know, but it’s the reality right.

Yoel Goldfeder:

The SEC loves throwing out the terminology that a transfer agent is a gatekeeper and that our role is to provide some oversight, to make sure that securities in the marketplace belong in the marketplace.

While it was brought up earlier, it’s a matter of time until the SEC amends the regulations, I’ll tell you the transfer agent regulations are 20 or 30 years out of date. And about five years ago they put up, it wasn’t even a rule proposal, they said, “We don’t know what to do. Here’s about 300 things that we can look at, what do you guys think?”

It’s been sitting there for five years now. So if we are going to wait for the SEC to change the regulations, good luck. That means we’re all going to be sitting on the sidelines for the next ten years plus.

Oscar Jofre:

Agree, agree. And if you want to change the wold on that end, you have to convince the bigger players - AST, Computershare. Those two companies own 99% of the worlds’ transfer business.

Believe me, they got the ear of-

Yoel Goldfeder:

But I’ll tell you, I go to conferences with AST and after I’ve gone to token conference, I went to a judicial conference.

They’re just recognizing ... it’s funny, I just got a newsletter yesterday from the Securities Transfer Association, there’s finally an article, Equniti existed after Wells Fargo, they said, “Hey, maybe it’s time to look at blockchain.”

Well, where have you been? Everybody’s already looking at it. You’ve been sitting on the sidelines because again, I’ve also talked with DTC who, for those who don’t know, is the backbone of NASDAQ, New York Stock Exchange, the OTC. For them they were patting themselves on their back this year because they went from three days to two days in clearing securities.

They’re not jumping on the blockchain bandwagon either because right now they have control over the trillion dollar marketplace that currently exists. It’s going to take time and you need people who are nimble and are looking at this space and ready to move in.

Scott Purcell:

One of the topics, what Will was saying is part of the technology.

All of their stuff at DTC is written in FORTRAN. Let’s go back to 1981 here, shall we?

One thing I want to point out, a lot of people may be sitting there in the audience going, “Gee.” because this was me a couple years ago as these guys know, “Oh, how hard is it to put together a cap table management system.? I can have one of my engineers knock that out in a couple of days. Not a big deal. Oh, and then I have to become a registered transfer agent. I file a piece of paper with the SEC. That’s it? Awesome! Easy!”

So, we had done that. We had created a registered transfer agent within my predecessor company, Fund America, which Prime Trust acquired. But we had created that transfer agent and then we’re getting ready for our first examination.

My guys are like, “Well, we have to comply with all these SEC rules that are tailored towards the public markets.”

Yeah, but they shouldn’t apply because the only thing the transfer agent’s doing is private securities like what Oscar is doing. So none of those apply. To your point, the SEC came and said, “Yeah, you’re right. They don’t make sense. They don’t apply. But it’s the only rules we have. We haven’t written new rules so therefore you’re subject to, as a transfer agent, the same operations as a V Stock or a Computershare or someone like that, that handles publicly traded securities.”

That is ridiculously overwhelming and at that point I said, “Yeah, we’re not going to do this anymore.”

We had to decide, are we in the transfer agent business or are we in the compliance and custody business? We’re not in the transfer agent business, these guys are. Great, let them do that and we focus on our stuff.

Yoel Goldfeder:

When the SEC comes to do their regular audit, it’s a regular thing. The first time it happened, it was surprising. An employee came to my office and said, “The SEC is here.” I go, “Okay, transfer the phone call, I’ll talk to them.” They go, “No, they’re here.”

I went to the door, there were two examiners from the SEC. They said, “Okay, where can we sit?” I had to clear out a desk for them and they didn’t leave my office for two months.

That is the oversight that we’re subject to and why they turn to us as the trusted advisor. I love the quote and I say it, “We’re centralizing a decentralized system.” That right now is the reality at least in the United States.

Scott Purcell:

For everyone in here who is new to regulation, usually coming out of the technology space, that is one thing. The SEC, FINRA, banking commissioner, FinCEN enforcement arm, a little company called the IRS, FBI, states attorney’s generals, they tend to just walk in the door. They usually don’t call and say, “Hey is it okay if we come over, do you have space for us?”

And they don’t usually walk in alone it’s usually with a team. If you’re in a regulated business, which I expect most people are, you can expect these visits during the year.

Guatam Gujral:

If we can maybe switch a little from the maintenance of the registry of owners and the custodianship of these assets. If I’m an issuer and I’ve issued these securities I have ongoing disclosure obligations. If I’m public I have to make periodic disclosures but I may want to make disclosures anyway to inform my stakeholders about what’s going on with the company.

What, if any, role do you guys play in helping an issuer get that information to the holders of the tokens?

Oscar Jofre:

In our platform, it’s an all-in one. Not only are we your transfer agent, to Scott’s point, we also have a capital management, we have an investor relations tool feature with it that allows you to communicate with your shareholders, it allows you to send your news releases, reports, it’s all confidential, one by one.

It’s got online e-voting, online proxy. And the investor has an entire portfolio management dashboard. You can call it a wallet but they don’t hold a wallet, they leave it there.

They can view all that information. We are assisting from that perspective. The other perspective are security token protocol that has artificial intelligence built in depending on the regulations and the number of jurisdictions they sold the securities in, they will have obligations of reporting.

Like any entrepreneur, you’re so busy running up your business, you tend to forget what needs to get done. The token itself within the platform creates triggers to tell you what you need to do and abide. You’ll still need your lawyers in some cases.

You’ll still need other advisors to complete it. In some cases you can do it yourself. As a private company, you have not as high a threshold of reporting but within our ecosystem, with our broker dealers, if you sign on with us and use our token, you will have to meet a threshold of public disclosures in order to create this mechanism of liquidity and trust that isn’t often required by regulators but is required within our ecosystem ourselves.

Scott Purcell:

Even if you’re private, if you went out with Reg CF or Reg A, talk to Howard here at StartEngine, he can give you the stories on that, you still have reporting obligations even though you’re not a public company.

Yoel Goldfeder:

It’s very interesting. People forget, in the old world, I’ve closed my IPO. Great, let’s all pat each other on the back. Well, now you have obligations, now you have stakeholders and you have shareholders.

It’s not going to be that much different if you close your STO. All of a sudden you now invited potentially thousands of individuals into what you’re doing. We’ve had companies say, “Well, what if we want to pay a dividend, airdrop.” I go, “That’s great, we can help you with that.” I go, “Don’t forget the IRS.” “Oh, there’s tax obligations now.”

It’s like you forget about the little things that have existed for years in the traditional world that have to be brought into the tokenized world as well.

Guatam Gujral:

How would that work in terms of an issuer wanting to pay out a dividend or make an interest payment to its token holders using your platform?

Yoel Goldfeder:

There are people who are building it into the smart contract.

Again, we’re looking at the public spaces. How you build your smart contract. We’ve built in our systems to interact with smart contracts to be able to communicate to be able to provide air drops and do all these additional components which a traditional transfer agent has always done and assisted with.

One thing that’s fascinating and I read a congressional release, the one hope is that we’ll get more transparency.

One of the complaints that Congress has always had is that the CEOs’ management of public companies had no idea who their beneficial holders were. And they’re hoping that with the advent of blockchain, the records are out there, that we’ll get more transparency so there is more direct communication without a lot of DTCs, clearing firms, and things that usually would hamper that direct communication.

Oscar Jofre:

Agreed. You know what, that’s a great closing. We’ll go back a few years, okay.

Going back to the early days of the JOBS Act that created people like Scott, David Wield and many others. The whole vision was to change the public mindset that the company that got that money had no idea who that holder was and whether they invested $1000.

The whole JOBS Act it connected us. We were directly connected to the companies, the companies knew who their holders were, you could engage with them. But all of that people call that, well that’s social media and so on.

But there are obligations why we do it and there is a beneficial to both the company and the shareholder. If we get to the point where we can graduate a company from being private to public seamlessly through a blockchain, that would be amazing.

As I said, at the moment, I stop at the private side just because I realize that in the public world it’s going to take a little bit longer. In the private world we have this opportunity of a fragmented industry that can actually change things, we really can.

We can have what the blockchain, crypto-world has always foreseen. Let’s democratize so let’s give everybody an opportunity to invest. We all want that but we need to do it within the guidelines in which they’re out there and it can’t get done.

That’s where I get excited because when I see my clients fully engage with their 86,000 shareholders because of the JOBS Act and they see the value and those shareholders buy more shares all the time, that’s what this was intended for.

All we’re doing, we’re just going to call it a token from now on. That’s it. It’s that simple. Nothing more.

Guatam Gujral:

So, would it be correct for most people to just think about tokens as just being the newer form of a dematerialized security?

Oscar Jofre:

Agreed?

Yoel Goldfeder:

I’d like to think it’s more than just a newer form. If we’re going to have the same security and we’re just slapping a different name on it, then why go through the effort?

I love reading the stories about the functionality being built into the tokens, the utility aspects excite me. They make the SEC nervous but a securities nerd like myself, I like to see more than just calling it a simple equity.

Although, let’s be honest, if you’re going to make your token a little convoluted right now, you’re going to have a tough time explaining it to the SEC. You need to keep it easy in the beginning until they can accept where the marketplace is going.

Scott Purcell:

It’s just the token just reduces friction for the whole ecosystem. And this is the securities token industry. Securities. It’s regulated and it’s embryonic. You have a lot of players that are putting custody or ATSs for training or transfer agents.

All the pieces of the plumbing that’s required. But we’re all collectively as an industry, still working it out and coming together and how it’s going to happen. So stocks and bonds are already electronic. You have them on a statement, you don’t hold them. You might, maybe, but.

Yoel Goldfeder:

Some do.

Scott Purcell:

But 99.99% of people just have them on a statement. It’s already electronic so the token is just another type of electronic ownership interest record. But it has a lot of cool features, as everyone in this room knows, a lot of cool features and ease of transferability. It’s just the next generation of the securities industry.

Guatam Gujral:

Thank you, I think that’s all the time we have. Really appreciate your insights here and thank you for listening and we’ll be around if you want to ask any further questions. Thank you very much.