Hey everybody, it’s me again, Adam Chapnick with the Security Token Academy, thanks for being with us. I’m excited to be joined today by super attorney Rob Griffitts, thanks for being here.
Thanks for having me.
So, you’ve been working with startups, actually quite a long time, you said you’ve been doing about 15 years. That right?
That’s right, yeah.
So, what is it about that world that made you jump from the stayed and buttoned up world of the big firm life? What got you into…
Well, I was, well, it was the internet and everything that was happening then. I did the big firm thing, here in New York in ‘97, here in Skadden, Arps and then I wanted to get a little closer to technology, so I jumped out to Palo Alto and joined Wilson, Sonsini..
Where I spent a little bit of time and then I couldn’t stay away from New York for too long, came back and joined a startup, that a friend of mine had started, as in-house counsel. And when everything imploded, I decided to start my own practice because at that time there weren’t any large, there weren’t really any small, rather, law firms that were servicing startup clients.
Got it. So, you’ve been mostly facilitating the Reg D financing? Is that how you’ve been working with these guys?
Yeah. We’re a general corporate firm, so I’ve been doing a wide range of corporate transactions, but if I were to say I focus on any one particular thing, it definitely be helping structure financings and..
Of course, in startup world that’s, those are Reg D offerings, for the most part.
Right. So, what did, how did the JOBS Act and, you know, all of that land with you? Where did you think that was going to go and what do you think now?
Yeah, well, it was exciting. I remember in, it must’ve been in 2005 or 2006, a client came and said, you know, we’ve got, must’ve been a little bit later because of the, I think Kickstarter was starting to happen at this point, but they said, “why can’t we do the same thing with equity?”..
You know and we, you know, we looked over all the Regs and we said, you know what, it’s just not possible to do and then, you know, of course, years later we get the JOBS Act and that, you know, began to open everything up.
And, have you been a part of any financings that went through a Reg A or a Reg CF or any of those kind of things? Or is that just, sort of, not been…
Yeah, I’ve done some Reg CF’s...
My partner has done a number of Reg A’s, so..
Oh, so, you really..
You know, as a firm, we’ve..
Have been in it.
Yeah, mm-hmm (affirmative)
Oh, that’s great. And so, what, how has that changed things?
For, the Reg A and the Reg CF, have you seen anything happen with a startup? Has it made things easier, harder, has it been different?
Well, the CFs, the CF was very welcomed because, you know, I mean, it’s a controversial thing but a lot of people are saying, ‘why should these opportunities only be limited to accredited investors?’
You know, there’s this notion that, you know, regulations are much more about, you know, hoping people stay rich than helping people get rich.
You know, and I think there is, you know, I get both sides of that, of course.
So, even, you know, with all its faults, it’s limited to just over north of a million dollars.
I’m not sure that’s really necessary?
But it was, but it was certainly welcome, and I hope that we begin to see loosening up some of those restrictions...
To accommodate Crypto, frankly.
I would like to see some Crypto-friendly exemptions, either existing exemptions, loosened a little bit or brand-new exemptions that make sense.
So, what do you think is the most interesting thing happening in the token world when it comes to the kind of clients that we’ve been talking about, the startups that you do, that you see?
Well, besides the fact that, you know, that there’s…you know, it’s like when the internet came along, it’s like the great leveler..
Every, you know, everything is suddenly of potential, you know, I mean. One of the things that’s most interesting to me is, of course, the Security Tokens is what’s happening now..
ICO’s, I don’t want to repeat what we all know, really, but…
Oh, hey. Lay it on us.
I like the clarity that’s starting to emerge and it’s just terminology, right now. I was never a fan of term, Utility Token..
Because people would use that term as, sort of, a defensive declaration that, ‘I’m not a Security, it’s a Utility Token’...
After all, you can do something with it.
As Jay Clayton said.
It’s important that now, I’m more comfortable with the term because now, people are beginning to understand that, it may be a utility token but you might still be subject to the securities laws.
In fact, before the SEC really stared cracking down in December and January, people were coming to us, clients were coming to us and saying, “Hey, can you write us a utility token opinion?” You know, and we’d say, “Well, no. Because, you know, if you’re using it to raise money to fund this venture, then you’ve got yourself a security”. And a lot of times, they’d argue back and there’d be some hostility, you know..
And December, January comes around and now clients come to us, they say, “Hey, we’re doing an ICO, we understand in the United States that we’ve got to do a Reg D or some other exemption.” And so, it’s amazing how quickly things changed overnight.
So, what do you think about the place of Utility Tokens and Security Tokens? Do you think that we’re just going to let Utility Tokens be, sort of, international and then everything else in the US will be Security Tokens, or is there a place for both?
Oh, there’s definitely a place for both. I like the way that the Swiss have recently categorized it and I’m now seeing references here to this notion that there’s a payment token..
Which are your traditional, sort of, Cryptocurrencies, you’ve got Utility tokens and then you’ve got Security tokens. Now, what’s important to remember about the utility tokens is that they may be subject to securities laws.
If you’re selling them to fund a network which hasn’t been built yet...
You’ve got to comply with securities laws. But let’s still call them Utility Tokens, as long as you understand that you might be subject to that regulation.
In other words, let’s call them, let’s call them what they are and what they do as opposed to what regulations they might be subject to.
Right, that’s much more accurate because, utility tokens are just that, they’re, you know, call them gas, they give you access to a particular network..
It’s sort of, it’s a very understandable concept.
And, I think we need those. And we need them in the United States, right?
Security Tokens are, of course, something completely different and that’s what we’re here to talk about today. These are, I think in the simplest sense, these are tokens that are backed by some sort of asset. It just so happens that they’re also subject to the securities laws because the underlying asset is, not the underlying asset but the securities that the token represents.
And so, while there might be a tremendous amount of regulation that these tokens have to comply with and subject themselves to, that’s actually one of their benefits, right?, is because that regulation, that code exists, you know, the code of law, that is a term that we have..
Beause it is in fact code, it might be voluntary.
Right. It’s expected that you comply, but now what we’re taking is, we’re taking that code and we’re writing into real code...
And it’s almost come full circle. And so, the Payment Tokens, Utility Tokens, Security Tokens, we need all of them and I’d like to see, you know, I’d like to see some, I don’t like to get wrapped around terminology too much..
Because we tend to get hung up on it, but I think in this case, it’s actually very important for us to get clear on what these things are.
Yeah, and I think, without it, oh my gosh, it’s been mayhem. So, you’re right, I agree. So, from where you’re sitting, what do you think is in store for the next, say, 12 to 18 months with this new, like, fervor around Security Tokens? What, how’s that going to play out?
Well, as soon as the, well, people are starting to pay attention, obviously now. 2018 will be the year of the Security Token..
And, I think people are waking up to what, why…a lot of people are saying, look, this is a trillion dollar market and I don’t think there’s any doubt about that. I think, when the protocols really get fully developed and get adopted, you know, the fictionalization of assets that you’re going to see, these assets are going to have access to a global market, it’s going to be a more competitive market, I think the asset prices are going to go up.
And imagine, imagine this, take it to an extreme, think about, you know, the unbanked in Africa, right? We talk a lot about people in Africa or around the world, for that matter, that don’t have access to banks because they don’t have enough capital, there’s too much friction in the markets and that, of course, is one of the promise of cryptocurrencies..
For sure, yeah.
It takes so much friction out, so now they’re going to, they’re going to potentially need, probably be a need for a bank but now imagine that these same individuals can actually begin to invest in an asset. Imagine someone who might have ten dollars to place somewhere, someone, you know, in, I keep picking on Africa, but really, anywhere, suddenly has the ability to take that ten dollars and invest it in, you know, class A office space in downtown Manhattan..
And, you know, the term capitalism, we think of it, well, it’s a, it means the free market. I don’t think that’s where the term originated, it originated the idea that you can accumulate capital and gain access to the means of production and create a better life for yourself and pass that wealth on to other generations who can do the same thing and accumulate capital. Well, now we’re truly bringing that promise to folks around the world..
I love it.
And, I think, that’s the ultimate promise. And so, again, to what I said earlier, lot of people in the industry that are making all this happen are, you know, I’ve heard them say, well, this is, you know, this is really evolutionary, this is not a revolution and it might not be, it might not be revolutionary in that, arguably it’s a small improvement over the way things are done right now, but if you look at the consequences of this and where this is going, it is going to have a tremendous impact around the world in ways we can’t even imagine right now.
Rob, thanks so much..
Yeah, of course.
For joining us..
Thank you so much, appreciate it.
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