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SeedInvest’s, Aryeh Friedman Discusses
Global Security Tokens Regulations and the SEC

Expert Interview

Aryeh Friedman of SeedInvest

Aryeh Friedman

An entrepreneur at heart, Aryeh enjoys learning how startups operate and leverage technology in creative ways to craft a successful business model. Prior to joining SeedInvest, Aryeh worked at FINRA where he reviewed hundreds of IPO's, follow-on, and secondary offerings. During law school Aryeh worked at FINRA, the FDIC, USAO, New York Attorney General's Office and the New York State Supreme Court. Aryeh enjoys traveling to Israel and is especially interested in the Israeli startup and biotech scene. Aryeh graduated magna cum laude from Queens College with a B.B.A. in Corporate Finance and cum laude from the Benjamin N. Cardozo School of Law.

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SeedInvest SeedInvest a Gold Corporate Member of Security Token Academy

SeedInvest is a leading equity crowdfunding platform that provides individual investors with access to pre-vetted startup investment opportunities. SeedInvest has funded over 150 startups and boasts a rapidly growing network of over 200,000 investors. SeedInvest has had over 30,000 startups apply to raise capital since inception and has accepted less than 1% of those companies to feature on the platform. All securities-related activity is conducted by SI Securities, LLC, a wholly owned subsidiary of SeedInvest, and a registered broker-dealer, and member FINRA/SIPC.



Aryeh Friedman:

I think there’s a lot being done, especially post 2018 when you saw the market take a big decline. I think the one thing that’s happened is the market is maturing and people are quickly realizing that they have to work with regulators and embrace regulations. So I think a lot of that is being done, especially in the US. I know commissioner Clayton’s generally been very supportive of private companies and expanding their access to capital. However, he’s not the biggest fan of blockchain and security tokens. So that’s been a challenge and there’s been a lot of efforts to kind of work with regulators to, in a very collaborative effort, to try to get regulators comfortable with security token offerings and the benefits they can provide to a small capital, small business capital formation. I think there’s been a lot of issues and unanswered questions that a lot of people in the industry are trying to work with regulators to get answers to.

Yeah. From SeedInvest’s perspective, selfishly, we’d like to get guidance on the custody issue so that’s been a big thing that’s been held, holding regulated entities like SeedInvest who are operated through broker dealers, that’s been holding them back from really being able to be active and push the industry forward. The reason why custody is important is for a lot of these issuers, they do these raises and they’re looking for their investors to be able to custody at and normal custodians like you would for registered offerings in an IPO, whether it’s a clearing firm or a brokerage account. So there’s a similar need for it in the private space in order to push the industry forward and what that really is trying to get towards is secondary markets and that’s where the industry really sees the utility of blockchain technology.

They’ve said a lot without saying much. So they recently put out a joint statement with FINRA, which didn’t give any particular guidance, in a sense they just acknowledge that they’re aware of the issues and are working towards it. It did point out some of the challenges and issues that they’re thinking about. But at the same time, it didn’t give anybody in the industry real guidance to act on. One of their biggest, big concerns is one, cybersecurity generally in the space. It’s a new space that they’re still learning and there are a lot of people within the SEC and FINRA who are very sophisticated on the issue. The other issue is customer protection. So things around protecting customers, funds and assets at broker dealers and understanding how they could truly protect customers due to the uniqueness of the digital security tokens.

There’s a lot of demand, a lot of pent up demand, and to be honest, what you’re to see as a lot of that demand actually move overseas, which has been setting that US behind. So one thing we’re trying to hammer home and urge regulators is that it’s important to get guidance so we could push the industry forward in the US so we don’t lose market share overseas.

So there’s certain jurisdictions that are just opening the flood gates and anything goes. I don’t think that’s the best longterm strategy. So we’re looking towards these jurisdictions that are thinking about it in a very progressive approach, that this is a new asset class and a new type of security and we can’t treat it like a traditional security that’s been around for the past 80 years. We need to have a new approach and a new regulatory framework towards security tokens and really be thoughtful about it versus trying to fit a square peg into a round hole.

I think ideally we’d like to see to tear it up and start from scratch and really build something that’s built for the 21st century and blockchain technology as well as traditional security issuance has worked for a while, but just not suited for the new technology, as well as additional guidance. So things around custody and around cybersecurity. So we could really start to push the industry forward and actually start to progressively work on some of these digital asset offerings and it’s not going to be perfect. One of the critical things to achieving that is a very active and robust feedback loop. So practitioners in the industry could give feedback directly to regulators in real time, and also see real time changes and updates as things happen versus the traditional way of how laws and congressional action works, where it may take years to see even incremental changes, let alone significant ones.