As founding CEO, Stein is leading Harbor's efforts to tokenize private securities and unlock access, value and liquidity for private investments such as commercial real estate, investment funds and more. He was previously general counsel and chief compliance officer at Zenefits, served as general counsel at OptumRx (a subsidiary of UnitedHealth Group), was an Assistant U.S. Attorney, a federal judicial clerk and an Intelligence Officer for the U.S. Army.
Harbor: the compliance platform for tokenizing private securities
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Hey everybody, I’m Adam Chapnick.
I’m Amy Wan. Thanks for joining us. Coming up on today’s episode of Security Token Insight. In your security token investing news, get the latest on Circle’s purchase of Seed Invest, and we’ve got an expert interview with Joshua Stein, the co-founder and CEO of Harbor. Learn about the company’s new digital securities platform. Plus, how you can watch a CRE case study on the tokenization of the St. Regis Aspen Resort. That and much more is coming up on this episode of Security Token Insight.
Now it’s time for your security token investing news. Circle’s purchase of Seed Invest is now complete. The deal means Circle is one step closer to tokenizing securities. Circle is a global crypto finance company terms of the deals were not disclosed. You may recall, Security Token Academy was the first media outlet to announce the pending acquisition back in November at our Security Token Industry launch event in New York City.
Here’s what Circle’s co-founder, Jeremy Allaire, told the crowd about the pending deal.
We acquired Poloniex in February of this year. They were really innovative in being one of the very first marketplaces for all of these alternative assets in the United states, and grew very, very fast. They needed help kind of scaling and growing the business, but that was the first key step in building a token marketplace that can support a really broad range of digital assets, from currency assets, to commodity assets, to ultimately what we’d like to see is the training of security token assets as well.
That led us to Ryan and the Seed invest team and really wanting to have a primary issuing platform for raising capital for businesses to form capitol, but to marry that with the crypto infrastructure that we’d been building out to be able to allow businesses, and ultimately individuals. We hope to issue digital securities over the internet and allow investors, both accredited and non-accredited investors, to invest in those, and ultimately provide global secondary liquidity platforms for those as well, which is a really tremendous opportunity that crypto makes possible
By the way, Seed Invest is a gold corporate member of the Security Token Academy. To learn more go to our website: securitytokenacademy.com and click on the directory tab and the corporate member home page.
In other news, Fidelity’s digital assets service is now live. The investing giant launched its digital asset branch last year, and the branch is now operational. The new branch will over-see the custody of digital assets, providing safe and secure storage while also facilitating safe and secure trading. The company says, “Despite a bear market, institutional investors are continuing to show interest in adding crypto currencies to their portfolios.” Fidelity is well known for its handling of mutual funds and retirement plans. The company spends over 2 and half billion dollars each year on emerging technologies including Blockchain.
Finally, Templum is making a shift to private blockchains. Blockchain platform Symbiont is building a private blockchain and smart contracts system that Templum clients will use for STO’s. Previously, Templum left the choice of Blockchain protocol up to the issuers.
Harbor is also in the news right now because of their new digital securities platform. Harbor is a compliance platform for tokenizing private securities, ensuring compliance with existing securities laws at issuance and secondary trading.
I had a chance to sit down with the co-founder and CEO, Joshua Stein, to learn about the companies new digital securities platform. Take a look.
We’re launching version two of the platform. What we found was a real market demand for companies to engage with their investors. I mean, we think of it in terms of relationships, relationships matter. So before this change the Harbor platform, the Harbor brand was very prominent, and now we’ve changed it around so that you really see the issuer brands. You see the issuers color scheme, you see their brand front and center, and then you just see a little Harbor logo and powered by Harbor tag. It’s very clear that the investor is interacting directly with the company, and that that company is creating and deepening its relationship with the investors.
Then, we’ve also launched with that this trusted parties feature that allows companies to have controlled liquidity. Where it’s not just enforcing the rules around the security laws, but they can pick and choose a set group or types of groups of people to allow to trade. So fans, customers, existing share-holders, they can have controlled liquidity.
Then, we’ve also created a set of tools so that the company can administer their cap table, to make it very easy to get reporting and communicating with their investors. We’ll be rolling out additional features over time, like distribution and dividens, proxy statements. We can already allow for the distribution of investor materials. It’s a set of tools that are all around the company building, creating, building, and enhancing its relationship with its investors.
Spectacular. How do you feel about walking us through the dashboard from where you’re sitting?
Sure, so I think, why don’t I try walking you through the life cycle of security token-
Ooh even better, let’s do that.
Yeah and then, walk you through how the dashboard works at the end. I think that’ll make sense.
What happens is, if you’re doing a capital raise, the primary capital raise ... You have, there’s a marking website. It’ll be with this new platform it’ll be, let’s say we’re doing it for the Knicks. Not that we haven’t talked to the Knicks, but love the basketball team, let’s say we’re doing the Knicks. It would be Knicks, or let’s do the Warriors. It would be warriors.harbor.com. You would see some information about the investment opportunity, little bit about the Warriors, the background. “Are you interested?”
You’d click, you’d be invited to create an account, and would still have the warriors, still have the gold and blue. It would be all their branding. You would create a Harbor account, name, address, social, date of birth, couple of other pieces of information, copy your driver’s license. We do a first level KYCML check in two to three minutes, automated while you stare at your screen.
The next step is, is if you need to be a credited investor, you go through accreditation checks. You upload the documents to prove your assets or income, or you give us the name and email address of a proper third party that can attest to that credit status. Then, you sign an NDA. Then you go to the offering page, which is a more fulsome website that has more information on the offering. It’s got a copy of the private placement memorandum. It’s a really long formal legal document that has all the disclosures and financials. Usually there’s also a copy of a marketing deck that’s sort of an executive summary, and then there’s also a subscription agreement, the legal doc. When the investors ready they sign the documents.
Then they go through a payment order flow. They can pay in dollars. They get wiring instructions to an escrow account. They want to pay in crypto currency, they can pay in Bitcoin or Ether, and there’s a counterparty that provides a conversion service. You can think about it as though you’re paying in euros and yen. There’s a bank that’s providing currency conversion service. The issuer’s just getting dollars in that escrow account. When they’ve raised the minimum amount, the contingency in the fund raise, they break escrow. We announce the investors, “Congratulations, your investment’s been accepted.”
In the process so far, up until now, it’s a normal private capital raise, but in this case the Warriors, they can syndicate far more widely. They can take in far more investors than you ever could in a paper world, because we can efficiently, quickly, and cost effectively push them through.
Now comes the crypto part. We create a wall with a qualified custodian. We create the security tokens. We engage a big four accounting firm to audit the KYCML, the accreditation, the financial flows, the documents, and we engage in education campaign with the investor. The investor has their account where they can see, “Hey, I own 10 shares in the Warriors.” They can see the copies of the documents they signed. They can see links to a Warriors investor portal. They can see links to the exchanges or OTC desk where this is trading. Then, they’re off to the races, and they can go trade when and how they want.
The Warriors can sit back, and relax, and know that every time that share goes to trade it pins Harbor, no matter where it trades it pins Harbor. Harbor checks the who, what, and where of the securities rules and the rules that that company is asked for. Every time, if all those rules check out, the trade goes through, no one knows Harbor was ever involved. The ones that the Blockchain are, you can trade 24/7, 365, around the globe, with near instantaneous settlement and no counterparty risk.
If any of those things don’t check out, the rules can’t all be met. Harbor throws an error like an email message bouncing back. It’ll say, “Error. Would result in too many investors.” “Error. Would result in too few.” “Error. Buyer is not on the trusted parties list for this company.” That way, we’ve taken away the frictions of a paper world, and we’ve allowed people to trade freely to limits that they can under the prevailing market conditions.
That is a great explanation for people who would kind of want to understand the real-world way this would happen. As a little bit of insight based ball, or maybe I should say inside basketball for what you were saying. This is what we would call, and correct me if I’m wrong, it’s a Reg D 506(c) because of the way you describe this.
Now, are you guys contemplating going into the general public with maybe a Reg A+, or something like that? Is that possible?
If you want to hear Josh’s answer to that question, we have his full interview on our website.
Harbor is a gold corporate member of the Security Token Academy. To learn more, go to our website securitytokenacademy.com and click on the directory tab and the corporate member homepage.
Right now, I’d like to let you, our viewers, know that you can get the latest industry updates in our free, weekly newsletter The Security Token Edge. The newsletter is packed full of insightful information about the security token industry. The latest issue features news from Polymath, tZero, the latest revelatory updates, and much more. To Subscribe and get your free weekly issue, go to our website securitytokenacademy.com.
We also invite you to check out the digital wrapper on Medium. It is our new behind the scenes series with the teams booting out the security token industry. These are in depth interviews covering a wide variety of topics. You can view these when you follow us on Medium.
Be sure to read our new interview with Tron Black, the lead developer at Ravencoin, and be sure to check out the digital wrapper on Medium. You can find out more on website securitytokenacademy.com.
In a first of its kind, multi-city webinar on tokenization of commercial real estate, Crest, a project of the Security Token Academy, provided a detail case study on the tokenization of the St. Regis Aspen Resort. The webinar explored the disruptive forces that are emerging in commercial real estate, or CRE, financing. Here is your preview.
Disruption in commercial real estate has been appearing in lots of different ways. Certainly, in the office category of commercial real estate, also known as CRE, the appearance of coworking companies, such as WeWork, is a major new trend. Also, the appearance of technology companies that strive to improve property operating efficiency through prop tech, or property technology, is another area of CRE disruption.
There’s a new type of disruption emerging in the area of CRE financing. It’s a way to raise money via a new solution, which is compliant with US SEC regulations. It’s called “tokenization” and it is based on security tokens. This wave is barely just beginning, but examples are starting to emerge, and that’s why we’re here today as we cover the tokenization of the St. Regis Aspen Resort.
I wanted to help our viewers take a closer look at this iconic hotel. So, while I was there I had the opportunity to meet with the hotel’s general manager, Heather Steinhardt. Let’s take a look at what she had to say.
This is a gorgeous property. Can you tell me a bit about it?
I’d love to. We have 179 guests rooms, 30 suites. This is one of our three specialty suites. Then, we also have 25 residences, two and three bedrooms, which are affectional ownership has.
Fantastic. What else should we know about this property?
Well, the rooms and our public spaces were designed by Lauren R. and she was wanting to make sure that we’re bringing the outside light into the hotel, that it was like a mountain side manor. That it was contemporary yet very, very comfortable because, after you go skiing you just want to chill and relax.
I think she really did a lovely job in portraying those goals overall.
Regarding this specific property, you have the listing at JLL, and sold it to Stephane and Elevator Returns. What’s the backstory on that?
Yeah, 2010 we had the property on the market, and we had reached out to a number of offshore investors and had gotten in touch with OptAsia. We had been in touch with them on previous transactions before. We sold the asset to OptAsia and Stephane in 2010.
The 19 million dollars of tokens that were raised, what were those funds used for?
Well, I mean, that was a return of capital to the owners who effectively ... The tokenization is a true sale of ownership into the properties. The current owner decided that the maximum, they were willing to give away at that variation was 18.9%, so that’s what we put for sale, and we were happy enough to fill up the entire stack.
The way that it works is that you actually sell the property into an uprighting partnership. You create read share interest out of the partnership, and you capitalize the read through the sale of smart contract. Smart contract is effectively a digital share certificate. Rather than to have your fashion papers share certificate, you have digital form of it. It’s a beautiful instrument because all the security’s regulation are actually embedded into the contracted self, and it’s cheaper. It’s faster to transact, and it offers also, the ability to have global product trading or multi product changes.
We got involved with elevated returns first, helping Stephan in trying to liquefy in a different format, in a registered format, in a traditional listed read format, The St. Regis Aspen, and then helped him transition his project to a tokenized solution.
Prior to helping Stephane, we’ve also been very active in the whole idea of creating liquidity around nontraditional liquidity solutions around single asset real estate. It was a natural for us to help Elevated Returns and Stephane with their project.
Everything is going to get tokenized. Your identity will be tokenized. Your title will be tokenized. Your mortgage will be tokenized. Your equity will be tokenized. I mean, that is the future, when everything is running on this integrated efficient immutable blockchain system.
To watch the full webinar, just go to crest.io to register. Registration is, of course, free!
Back in October, the Security Token Academy held events around the nation to signal the kickoff of the security token industry. We held Security Token meetups in Los Angeles, and also in New York City. Attendees who purchased tickets to our two day cruise and conference in New York, boarded the Spirit of New York yacht, from Chelsea Harbor, for an evening cruise along the Hudson River.
That was followed by the Security Token Industry launch event inside the Conrad New York. Hundreds of people were in attendance as industry leaders rang the opening bell to signal the official kickoff to the security token industry.
To view all of the videos from Security Token Industry Launch Week, go to our website securitytokenacademy.com and click on the events tab and select “launch event video library”. The best part, it’s free and contains a wealth of information.
Alright, that’s it for today’s episode. Be sure to follow us on Twitter, Facebook, Telegram, and Medium, and don’t forget to subscribe to our YouTube page so you don’t miss out on any of our videos and expert interviews. I’m Amy Wan.
And I’m Adam Chapnick, and before we go, be sure to send us your security token questions and we could answer them right here on Security Token Insight. The address is [email protected]. Be sure to include your name with your question. And a big thank you to our platinum corporate member, Merrill Lynch, and all of our gold corporate members as well. We invite to learn more about our corporate members by clicking on the directory page on our website.
For everyone here at Security Token Academy, thanks again for watching.
You want to learn more about security tokens from the top leaders in the industry? Be sure to visit our website securitytokenacademy.com and click on the interviews tab so you can stay connected.
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