Top Security Token Takeaways From NYC
‘Wild Wild West’ No Longer
The Meetup boasted a panel comprised of the security token industry’s leading regulatory minds, including David G. Adams, Senior Associate at Clifford Chance, Aryeh Friedman, General Counsel & CCO at SeedInvest, Jason P. Gottlieb, Partner & Chair, White Collar and Regulatory Enforcement at Morrison Cohen, LLP and Robin Sosnow, Principal, Sosnow and Associates PLLC.
Friedman opened the night by commenting that the digital asset industry is no longer the “wild wild west” it was in 2017 — demonstrated by the SEC’s crackdown on ICOs and illegal offerings over the past two years, and an increasingly vocal commitment to regulating the blockchain space.
During 2016-2017’s ‘cryptomania’, Sosnow recalled how too often firms “asked forgiveness, not permission.” Many companies took the approach made famous by Silicon Valley startups and tech innovators — “move fast and break things.” However, regulators have made clear this approach will not work.
Friedman articulated that SeedInvest, a tech platform for startup crowdfunding, continues to take the approach of “move fast and do things right.” Adams agreed, adding, “It’s important to know the difference between a gray space in regulation and a no fly zone.” His advice to entrepreneurs? Get strong legal counsel upfront — the cost of good legal advice for any venture is invaluable when considering the cost of dealing with an enforcement action.
Gottlieb had a similar suggestion for entrepreneurs: “You want to avoid the approach of move fast, break things, and get a visit from the SEC.”
Opaque Regulatory Clarity
Over the course of history, narrowly tailored laws and regulations lag disruptive innovations. It was no surprise then that regulatory clarity was a theme much discussed throughout the evening.
“We’re seeing both entrepreneurs and investors interested in this space going abroad because they’re frustrated by the SEC’s lack of innovation,” said Friedman. Many panelists agreed that US legislators and regulators may be falling behind other countries when it comes to digital securities laws. Sosnow added — a “safe harbor needs to be created” for this new industry.
Friedman compared the current regulatory environment to “trying to fit a square peg into a round hole.” It’s unlikely that these new digital securities can simply fit into the old securities laws. “The rules simply need to be rewritten,” he concluded. Gottleib agreed, citing the fundamental tension between the current approach to financial regulation, which is based upon an old model of traditional ownership, and the security tokens of today, which enjoy a unique set of technological properties.
Sosnow cited an additional challenge — that many digital securities startups increasingly want to be able to raise capital from retail investors, and the current crowdfunding rules under Reg CF and Reg A+ still have a long way to go to make it easy for everyday investors to invest in the next great innovations.
While lack of jurisdictional clarity remains an issue, Gottleib advised the audience to simply “do your diligence” — that is, get educated on the legal and regulatory risks, and “know where the landmines are.”
Tokenization Moving Forward
Speaking on the future of the security industry, the panelists agreed that blockchain would become a force for good, improve the democratization of our markets, and potentially create robust secondary markets for all investors.
Finally, Adams added that tokenization projects aimed at a wide audience such as Facebook’s Libra may help people get more comfortable with the idea of asset tokenization. “When the everyday Joe can buy a cup of coffee with a digital asset, tokenization will become more tangible.”
What do you think about the major takeaways from the Security Token Academy’s recent Meetup in New York City? Let us know what you think in the comments section below.
Image courtesy of Security Token Academy.