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Prime Trust CEO Scott Purcell: Why Custody Is So Important

Expert Interview


 
Scott Purcell CEO &  Chief Trust Officer, Prime Trust

Scott Purcell

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.

Transcript


 

Adam Chapnick:

Hey, everybody! It's me, Adam Chapnick with the Security Token Academy, and we are here at the third annual StartEngine Summit. And I'm joined by friend of the show, CEO of PrimeTrust, Mr. Scott Purcell. Thanks for joining us.

Scott Purcell:

Absolutely, welcome.

Adam Chapnick:

So, I always love talking to you, as you know, because you are extremely articulate about very arcane parts of this industry.

Scott Purcell:

Aw, thanks.

Adam Chapnick:

Yes, and while some people get scared by that, you don't. Not only do you talk about it, but you jump in and make solutions about it. So, while I know all about you, I really want you to help the viewer who don't know about you. What is PrimeTrust; and maybe even define sort of the role that you play. 'Cause a lot of people ... I don't know if they're that familiar with custodianship and any of that stuff.

Scott Purcell:

Sure.

Adam Chapnick:

So, what are you?

Scott Purcell:

Sure. PrimeTrust is a financial institution, a form of a bank, that is a trust company. But it's serving the blockchain community. And what we do is, specifically, we hold custody of assets. So, people with Bitcoin, Ethereum, ERC20 tokens, Stellar tokens, soon other blockchain tokens, we can hold those in custody and give them a statement. So we keep them safe, we keep them organized. We make it really easy for them transact business. We provide exchanges, crypto-exchanges, with a way to trade, hold custody of customer assets and trade on our platform or trade on our ecosystem. So that their exchange is doing the work, We're like a ... we're underneath the hood with all the custody. Then we provide a lot of escrow services; we do escrow for securities offerings, securities token offerings.

StartEngine, of course, is a wonderful client; they're the biggest in the space. They do a terrific job. And we process all the money. We handle everything that goes through the investments and transactions. And then we act as qualified third-party trustee for assets that are being tokenized. So people who are tokenizing real estate and things like that, but more exciting right now are the stablecoins, people who are tokenizing dollars, and putting those dollars out in a digital form. We hold the asset to protect and safeguard it for the benefit of token-holders. So the issuer can't use it as a piggy bank.

Adam Chapnick:

Alright. Okay, so lots of concepts in there to kind of cover. So, the overarching value that you provide ... to make it real "cave man", is "You. Safety." You provide a safe and secure place-

Scott Purcell:

We're a trust company; we protect assets.

Adam Chapnick:

Protect assets. Right. And you do it in some interesting ways now. You were talking a little bit earlier about the importance of something a stablecoin. A lot of people may have never heard of that, but there's some very ... in our industry, there's some very well-known ones that maybe aren't as stable as they look or sound, and because people don't understand how they're structured or what they do and don't do. Can you tell us a little bit about the importance of a stablecoin, in your job, and how you guys are addressing that?

Scott Purcell Purcell:

Let me just define a stablecoin real quick. If you think about cash, your dollars, you probably have some in your wallet. And it's most likely, you rarely open your wallet and use them. You use your debit card, you send by Venmo, you log onto your bank account and electronically send a check to somebody, which actually goes via ACH. So, our money is 95% electronic as it is now, it's not physical. Banks ... you walk into a bank, they don't have all of the bank's cash in a big vault. They send it to the Fed, wherein the Federal Reserve keeps it in electronic records as to what bank has what records. Dollars are already electronic. They're already in digital form. So a token is just another way of taking an electronic dollar and using it in commerce or for anything else, live Venmo. You can send point-to-point with a stablecoin, which is a tokenized dollar you can send point-to-point. You can use it for anything. Where our role comes in is that these trustees, or these issuers who are creating stablecoins, and there are a lot of great ones out there, there's TrueUSD, Carbon, Augur Coin, Stronghold, BOScoin, Vault, which is a gold-backed coin, so a lot of different ones.

We hold those assets, and we protect them. So that the dollar that is in reserve, for a dollar represented token, it's gonna dollar tomorrow; it's gonna be a dollar next week; it's gonna be a dollar next year. And the person who owns it can come to us, anytime, and say, "Here's my token. I want a dollar." And we'll do that. And we do this every day for them. That way, it protects it. The issuer can't misuse funds. Nobody can steal them, and we're holding it as a custodian. Or a trustee, rather.

Adam Chapnick:

Yeah, so, now at first blush, that seems so obvious, right? That's a dollar coin, a dollar token. It should be backed by a dollar. Now, it may be surprising to people to hear that might not be how all stablecoins, that people have ... dollar pegged stablecoins coins that people heard about ... They're doing a couple of different other things. Without me naming names, what are some of the other things? What are some of the other ways that people aren't sort of hording their stablecoin?

Scott Purcell Purcell:

Really, the problem is that the ICO industry, for the last several years, has been rocked by scandal after scandal after scandal. Not just the fact that some ICOs are really securities and should have been offered as such. But the reality, a lot of them are just outright fraud, and people stole billions of dollars. Many billions of dollars through fraudulent ICOs, and that's the problem. There are people that are issued fake equity interests in company or fake business promises. There are also people who are issued fake stablecoins, that were never held with a trust; the money was never held with a trustee. There's no audit done on it. There's no safeguards. It's just theft. It's fraud.

Adam Chapnick:

Yeah. Okay. So that's important for people to get. That even though things sound simple, you have to check and make sure they are as simple as they sound.

Scott Purcell:

A little bit of due diligence.

Adam Chapnick:

A little due diligence is good. You do something else I think interesting that helps people have a ... You have a capacity for a large amount of backing, let's say. Is it a syndicate of banks that you guys work with, where you can spread out?

Scott Purcell:

Well, if we're holding dollars, U.S. Dollars, then for anyone, whether it's an underlying asset of a stablecoin or just a hedge fund or institutional investor, we insure up to $130 million in FDIC-insurance per tax ID.

Adam Chapnick:

And that's amazing.

Scott Purcell:

and we do that at $250,000 a day-

Adam Chapnick:

I was going to just stop and point out for the people who may not understand that that number is pretty eye-popping because the FDIC limit is only a quarter of a million. So, how do you have $130 million?

Scott Purcell:

We're a syndicate of 520 banks.

Adam Chapnick:

That's pretty awesome. Again, it's such an obvious answer, but who would do that?

Scott Purcell:

Let me guess.

Adam Chapnick:

You!

Scott Purcell:

We do that. And then, if somebody goes above that, we actually put the money into short-term U.S. Treasuries, because we don't want to see any money ever not be 100% insured by the U.S. government or its agencies.

Adam Chapnick:

Amazing. From your perch, which is a unique perspective because your part, the guts, you see the issuers, you see the platforms. What do you see is the most promising sign about the evolution of this security tokens space? Then, maybe, what do you think what are some of the red flags, or yellow flags, let's say.

Scott Purcell:

Well, the most promising thing that in over the course of the last year in particular, people have come to accept and appreciate that regulators have a role in this. That's with SEC, it's with FinCEN, it's with the Treasury. Seeing people become compliant has been the most exciting thing because it actually creates stability, and starts eliminating ... helping to eliminate a lot of the fraud that we've seen. At the dawn of this, it was all run by technology people, which are great because we have incredible innovations, but they have no education in regulatory affairs; they have not appreciation for it, or often no respect for it. And so, they've gotten in trouble. It's taken us this time to get here, but now this industry is on solid footing, and it's poised to do some incredibly disruptive things. Stablecoins being one of them.

Adam Chapnick:

Amen. What do you see as maybe a yellow flag, or maybe some of the friction points that need to be ironed out for this to really to take off?

Scott Purcell:

The yellow flags are still the core of purists, who want it to not be regulated. Who want it to be something else.

Adam Chapnick:

Crypto-anarchies.

Scott Purcell:

Crypto-anarchy. I understand that, but it's not the way it is. You can't wish regulation away. So when people listen to those people and take action, that's a yellow or even a red flag. Because they're not just going to get themselves into trouble, but with the lawsuits and regulatory actions and the fines and possibly even jail time that comes from that, it gives the industry a black eye. That's the biggest thing. Stop listening to the people from two years ago.

Adam Chapnick:

Right. Right. Bringing it back to you, what do you guys seek in the next, say, six months? Are you steady as they go and just scaling up with what you've got? Or you got something new coming?

Scott Purcell:

Tim Draper gave a speech that I watched at a courthouse in San Francisco. He talked about how this looks compared to the dotcom bubble. He thinks that the dotcom bubble [broke 00:10:45], lot of fake stuff in there, it popped, and then the real businesses came afterwards. And then that's when we had Amazon and so many others really get legs. He thinks that blockchain now is post-bubble, and that now it's when things are really gonna take off. How's it look in terms of scale? For PrimeTrust, as well as for the industry? Exponential.

Adam Chapnick:

Exciting. Alright, well, we'll leave it at that. As always, thank you, Scott Purcell, for joining us. We'll have you again soon and often.

Scott Purcell:

Appreciate it. Thanks.