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Security Token Insight: Expert Interview with Marc Boiron, Partner at FisherBroyles

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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Adam Chapnick:

Welcome to Security Token Insight brought to you by the Security Token Academy. The security token industry is here, and will provide a key foundation for the evolving financial internet. The Security Token Academy provides insights about this new era for security token enthusiasts, investors and issuers. The security token industry is here and you can still get involved. Hi, I’m Adam Chapnick, and here we are in another episode of Security Token Insight in the first half of 2020 during these unusual times, we are coming to you yet again remote, and we thank you for joining us. We’re committed to providing you a ton of actionable intelligence and news all about the security token industry. Thank you for being here.

Coming up on today’s episode of Security Token Insight, in your security token investing news, BitGo acquires Harbor. We have the second part of our expert interview with Kinsey Cronin, Vice President of Business Development at Prime Trust, and hear from Marc Boiron, in our Security Token Stories podcast. That and more is coming up on this episode of Security Token Insight. Now it’s time for your security token investing news. Up first, Fatburger just got a little fatter with a $40 million infusion. The new capital arrives via securities issued on the Ethereum blockchain. Fatburger’s new raise is also the first time that securities issued on the blockchain have been rated by investment ratings company, DBRS Morningstar. Fatburger has a goal to raise a total of $500 million by the end of 2020.

Next in our news, Coinbase appears to be one step closer to gaining an operating license in Japan. Coinbase has joined the Japan Virtual Currency Exchange Association, which is the country’s self-regulatory organization for crypto firms. Their new membership is listed as a second class member, which indicates that a business is, “Applying for or planning to apply for a virtual currency exchange registration.”

And finally BitGo has acquired security token platform, Harbor. The new deal with will enable BitGo to establish itself as the first full stack services provider in the digital security sector. The acquisition of Harbor will enable BitGo to provide all the elements of a traditional financial system. The new company structure will be divided into three categories of service. One, qualified custodian securities on behalf of a client. Two, broker dealers, trading securities for self and for clients. And three, transfer agents who help record all transactions.

By the way, Harbor is a gold corporate member of Security Token Academy. To learn more, go to our website SecurityTokenAcademy.com, and click the Directory tab, and select Corporate Member. Have you listened to our latest podcast? Be sure to check out our Security Token Stories, featuring the one and only Derek Schloss as he sits down for one on one interviews with security token industry leaders. Derek are recently sat down with Fisher Broyles attorney and partner, Marc Boiron, to discuss the SEC’s recent Safe Harbor proposal. Take a listen.

Derek Schloss:

So let’s dig into the specifics of the Safe Harbor. Something key to point out here before the Safe Harbor was proposed, if you wanted to sell a token before a network had launched, you had to either register the offering, or qualify for an exemption. And we’ve seen the SEC from that stance, a number of times over the last few years with blockchain networks, whether it’s through settlements, or speeches, or actions. And one thing I found interesting with the Safe Harbor, Marc, was I think it appeared to say that even brand new initial token offerings could rely on this Safe Harbor carve out, which would exempt the offer and sale of tokens from the Securities Act and the Exchange Act for a specific time period. So can you walk through exactly what the Safe Harbor is proposing, what the time period that Commissioner Peirce is suggesting, and maybe just your initial opinions on reading through this, and some of the things that it implicates for you?

Marc Boiron:

Yeah. To your point, she cites the Blockstack regulated offering as an example of just the issues that all of this creates. And there’s multiple million dollars that Blockstack spent to be able to sell its tokens. And I mean, frankly, it’s just not acceptable to me to spend that much as an early stage company to distribute network tokens, not something that was clearly just something that was to raise money, but would actually had intended to be used in the network. Maybe not by all the buyers, it actually had usefulness to it. Regardless, her proposal essentially that ... the biggest point about it is it exempts any token sale from registration, or needing to rely on an exemption. Actually, it makes it an exemption under the Securities Act.

And so typically, when you are relying on an exemption under the Securities Act, it comes with a lot of restrictions along with it. Most of those are transfer restrictions, or their substantial disclosures, or their restrictions on dollar amounts that can be sold. But we really don’t see that in a major way here. What we see as, okay, you’re going to be exempt if you meet certain conditions. And so one of those is, hey, the initial team that’s doing the development of this network needs to actually have the intention of creating a network where these are being sold are going to be functional within what she basically says is three years. She calls it the network maturity. And within three years, you need to have reached network maturity. Obviously, that three years is a completely arbitrary number.

On top of that, if you look at some of the more successful networks, and here is an easy example, we’re much past three years right now. And, I wouldn’t say that Ethereum Foundation, or anyone who was initially involved with Ethereum thought that it would take this long, or that they’ve actually achieved what they thought they were going to achieve back then. And so three years is a very arbitrary time frame. It’s pretty long, but when you’re talking about creating a network that is intended to be used by broad range of people, and then essentially nobody has control over it, to me, three years suddenly starts looking really short, actually. It’s not that long anymore. But given the framework that Commissioner Pierce decided to put out, it’s essentially, she chose to pick a date.

Another thing that was kind of important is on top of that, you need to make certain disclosures. Now this is something that I’ve personally been harping on for a while is this idea that no we’re supposed to register offerings, or file a Form 1A, and follow the disclosures required with traditional securities, when it really doesn’t make any sense, is kind of problematic. And so, here we have her, she’s kind of laid out what it is that we’d have to see in terms of disclosures, and things like your source code, transaction history, token economics, plans for development, things of that nature. I think one of the things that is underdeveloped in what she’s put out is this concept of governance during that time period. Now, partially it’s because she’d use it as, they’re still a centralized entity that is intended to take certain actions, but token holders are at the whim of the centralized entity, and so they should probably have some kind of say, almost like a shareholder would of a corporation. So that’s something that wasn’t focused on as much. But nonetheless she talks about the disclosure requirements.

Basically, then she’s says the intent of when you do this, your purpose is supposed to be the development of the network. That’s why you’re selling these tokens. Again, that makes a lot of sense given her goal of, we want to make it possible to develop these networks. And that’s literally the only reason. I also think that’s something that’s been under looked by a lot of folks, who’ve been commenting on it. I think you could go a little further in terms of restricting the language that she’s used, but the fact that it’s supposed to be sold for that purpose, it kind of indicates that maybe selling millions of dollars-worth to a VC isn’t going to be compliant with the Safe Harbor, because it’s not clear that offering and selling that many tokens is for the purpose of the development of the network. And that could also just be a question of language. Maybe the answer is, well, if you’re just using the dollars to develop that network, then it very well could be, in which case it’d be fine.

And then the last point being that you have to file something. Oh yeah, you do have to be relying the laws. You have to be complying with other laws, which makes a lot of sense. But on top of that, you have to develop a secondary market for the token. And this is probably the most controversial point, other than the three years of the whole thing. Because historically if you go ahead, and it’s been one of the things the SEC has pointed to frequently with respect to ICOs and other token sales is you actually went and listed your token on an exchange. That clearly showed that people had an expectation of profit, otherwise you wouldn’t have done it. And so now this proposal says, “You’re going to go ahead and actually list them on secondary market.”

Now, I get why there’s a lot of pushback on that. What I’d also say is that it achieves one of her goals, which is how do we get tokens into people’s hands? But the corollary is, how do we let people actually monetize those? Because if you’ve got minors on a network, and you’ve got developers on network who are getting tons of tokens, and they literally cannot do anything with them, I really don’t know how many of them are going to stick around for very long. They need to be able to sell them, or they’re not really going to be able to live in the current economy that uses US dollars. And so, I understand that the reasoning behind that. I’m not sure this is the best way to execute it, but it makes a lot of sense in terms of what she was trying to achieve.

Adam Chapnick:

Go to our website, SecurityTokenAcademy.com. Click the Interviews tab and select Podcast to listen to the full episode. The Security Token Academy is proud to present an expert interview with Kinsey Cronin, Vice President of business development at PrimeTrust. PrimeTrust is an SEC-qualified custodian for security tokens issued using the ERC-20 standard. In addition, PrimeTrust compliance services include KYC, AML, and bad actor checks. We sat down with Kinsey to discuss PrimeTrust’s new service, PrimePay, take a look.

So a lot of different companies in the space that do different things are concerned specifically micro about, they’re blockchain. They do stuff here. They don’t do it. Yours is no good, mine is great. Do you guys support only ERC-20, or do you support a bunch of blockchains, Ethereum only, other blockchains?

Kinsey Cronin:

Well of course we also custody Bitcoin.

Adam Chapnick:

Oh, Bitcoin.

Kinsey Cronin:

And there are a number of other blockchains we can work with in limited capacity. And the good thing about Ethereum and ERC-20 compliances that most new tokens are coming out that way, especially in the security space. And there are just so many of them that we can cover a lot, just by covering the ERC-20 compliant. That said, we do get requests all the time for new protocols, and we take them all seriously. So as I said, there’s a few that we can, just because of the way our systems work, we can custody, and then as requests come in, and there’s volume and promise, we’re always willing to consider custodying a new protocol.

Adam Chapnick:

Right, nimble, as you said.

Kinsey Cronin:

Mm-hmm (affirmative).

Adam Chapnick:

So you mentioned that the security token industry, which is what we are focused on. You were talking about how much it’s evolved and it’s always changing. Where do you think it’s headed?

Kinsey Cronin:

Oh, I haven’t changed my mind about where it’s headed, right? So to me, I think there are a lot of people who agree. The securities industry isn’t going to change in every way, right? It’s not going to be taken over or replaced. I think a lot of these backend systems are going to be replaced. It’s going to be a way of cutting out middlemen, and a way of making things faster and more secure. So I do see tokenization taking over as a means, as a way of holding securities or representing them, the same way that the book entry digital system took over actual pieces of paper, right? So I see that being the end direction. There’s a lot of incredible ideas out there. I think that they can’t all win. And I do think that the system we end up with won’t look that different to the average person from the system we have now. It’ll just be running on a different computer system basically.

Adam Chapnick:

Interesting. So you’re of the mind that the seed change is going to be under the hood?

Kinsey Cronin:


Adam Chapnick:

Yeah. That’s interesting, because I agree with you. So do you see, I always love asking this, any trends? Because you guys get to see things that actually are happening, whereas we get to talk about what we think, but you’re in it. Do you see any tokenization trends that are actually having any interesting kinds of assets that are tokenizing, or even not interesting, but that are trending, where more people are using it than others?

Kinsey Cronin:

I see a lot happening in real estate, and I think real estate just in what we do, we do so much in real estate. I think it has made real estate, which many people think of as a great investment, more accessible to more people, because when you can split that up more easily, and you can offer smaller pieces to more people, and that’s tracked properly, and it can be traded, and there’s liquidity there, I think that is definitely a trend that we’re seeing. As far as other trends, just generally related to tokenization, I would say there isn’t a trend. Everybody has their own idea. So you never know which one is going to win out.

Adam Chapnick:

So what sectors do you think could benefit from tokenization? Not knowing what’s going to work out, but is there anything that you’ve been thinking, “Gee, that’s an interesting possibility?”

Kinsey Cronin:

Well, right now we’re seeing a lot of interest from the more difficult to bank industries, so adult and cannabis, those industries, they’re looking for more solutions. So I think they’re probably likely to lead the way in some cases, because they have fewer options. They’re used to paying a lot in fees. So if they can find better solutions for their own banking and security services, they’re going to be more open to them early.

Adam Chapnick:

Interesting. We have the full interview with Kinsey Cronin on our website. Be sure to check it out. By the way, PrimeTrust is a gold corporate member of the Security Token Academy. To learn more, go to our website, SecurityTokenAcademy.com, and click the Directory tab and select Corporate Member. Did you know that you can get the latest industry updates and our free weekly newsletter, The Security Token Edge? The newsletter is packed full of insightful information about the security token industry. To subscribe and get your free weekly copy, go to our website SecurityTokenAcademy.com. We also invite you to check out The Digital Wrapper on Medium. It’s our behind-the-scenes series with the teams building 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. You can find more information on our website SecurityTokenAcademy.com.

I want to remind our viewers that if you have any questions about security tokens, be sure to email us, and we could answer them right here on a future episode of Security Token Insight. The address is [email protected] Be sure to include your name with your question, and one more time, the address is [email protected] You can also learn more by visiting the Frequently Asked Questions page on our website by clicking on of course, the FAQ tab. Our Frequently Asked Questions page is packed full of security token industry terms and concepts.

To prove it, today’s term of the day is automated compliance. Automated compliance, today, regulatory compliance for securities is typically documented through a series of separate ledgers. Each constructed by entities that facilitate issuance and/or secondary trade. Only through a reconciliation of these segregated ledgers is ownership and compliance legally validated. With security tokens, which are built on a model leveraging transparent and immutable blockchain ledgers, regulators will have a far easier time keeping track of compliance issues, system manipulation or fraud. Got it?

All right. 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. And a big thank you to all of our gold corporate members as well. We invite you to learn more about our gold corporate members, by clicking on the Directory tab, and click Corporate Member. I’m Adam Chapnick. For everyone here at Security Token Academy, thank you so much for watching and stay sanitized.

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