Tag Archives: Prospectus.com LLC

Securities Regulations 3.0 Digital Token Offerings, ICO vs. STO

Digital Token Offerings & Securities Regulation: Are you an ICO or STO? (the following is courtesy of Prospectus.com LLC) 

A question that is harder to ask than whether asked if your product is butter or margarine. Blockchain token sales (aka initial coin offerings or “ICOs”) reportedly topped $5 billion in 2017, with approximately $1 billion ICO offerings originating in the United States, according to a December 2017 report by Ernst & Young. Blockchain technology has a variety of prospective applications, and blockchain tokens can have a variety of features and functionality. For example, some blockchain tokens may function as a virtual currency, or as a license or right to receive a good or service or to use certain software. Even traditional assets like real estate or stock in a company may be “tokenized.” That said, a token’s characteristics and the manner in which the token is sold drives the determination as to whether US securities laws –as well as a growing universe of securities regulations in other jurisdictions-may be applicable, explaining the more recent industry labeling:“securities token offering” , also known as STO.

Evan Fisher prospectus.com
Evan Fisher, Prospectus.com LLC

While much has been said and much has been written on the topic of securities regulations within the context of digital token offerings, it would seem that many are still clueless (or perhaps have bananas in their ears and blinders on their heads). Evan Fisher, a finance industry veteran  and business plan consultant at Prospectus.com LLC stated, “Of the several dozens of initial conference calls between the staff at Prospectus.com LLC and crypto cool kids seeking white paper writing and/or investor offering document preparation for respective ICOs,  the take away is that many crypto entrepreneurs still suffer from blind eye syndrome and are advancing capital raises in direct violation of established law. ” Adds Peter Berkman, a US securities and real estate attorney who also advises clients of Prospectus.com LLC, “Regrettably, ignorance of the law is not a viable defense strategy for those charged with violating securities laws and/or anti-money laundering laws.” Added Berkman, “the popular argument held by many start-up entrepreneurs in ‘crypto land’ is that their token is not actually a security-which is fine-as long as they’ve set aside several hundred thousand dollars to defend that argument when they wind up wearing court order to appear.”

That said, there should be two rules of thought for those who aspire to advance digital token offerings and who believe they have a great, industry disrupting idea that leverages their fintech fluency and the blockchain ecosystem. First, consider the 3 Duck Rule-If it looks like a duck, walks like a duck and quacks like a duck, regulators will call it a duck and second, advancing the notion that your ‘token’ is a utility device and the pitch to investors is “the value of the token will increase as usage of the token increases”–hence the reason for investing in it-is a thesis that has been advanced by each of the 800+ digital token offerings that have died on the vine before reaching puberty.  Leading many investors to ask in retrospect, “What the f*&k happened to the money I invested?!”  In turn, leading this author to answer: “Your money has been carefully distributed to a variety of real world assets, including luxury homes, vacation homes, cars, NetJet contracts and other toys purchased by the folks who you sent your money to.” If you’re a crypto cool kid and your value proposition is “If we build it, they will come and they will play” and hence,  “its the balls and bats that we provide that will have value and the more folks play, the greater the value of the bat and balls,” we congratulate you for socialistic leanings.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com.

On the other hand, sophisticated investors are rapidly losing interest in pitches for digital token offerings that are based on the same premise advanced by dot-com busters–the one that suggested “if we get enough users, we’ll be profitable!” Yes, that proved true for whose business models were based on advertising sales and were able to attract enough eyeballs to appeal to advertisers. And yes, this model has worked beautifully for Alphabet Inc, FaceBook, YouTube and a select universe of others. Yes, you can also go to the dot-com graveyard and locate the thousands of others who never got enough users, or never got advertisers to pay those sites to install a click-able link. In the Software as a Service (SaaS) model, people pay for using a software application on a subscription basis. In the utility token construct, payment to use the software application and those who receive payments is often complex; but investors in the token are generally not sharing in that revenue. They can only look to a return on their investment if a whole bunch of people are using it and if a whole bunch of people are using it, they will need to procure more tokens for continued usage. If  there are a limited number of tokens available for using the application, the value of the token will therefore increase.  Not to suggest the ‘pay-to-play’ model is bad (its arguably a good business model), the rubber meets the road at the point where users don’t want or don’t need to play with your token–because nobody else cares to play with it.

To read the entire article from Prospectus.com LLC, please click here

Continue reading

fintech-spac-ipo

Former NYSE Prez Farley Launches Fintech SPAC IPO

Tom Farley, the former top gun at the NYSE, has long advocated the benefits of raising capital via the construct of Special Purpose Acquisition Company aka “SPAC”, aka “Blank Check company.” Now he’s become the CEO poster boy for SPACs with the formal IPO and NYSE listing of Fintech SPAC Far Point Acquisition Corp., a financial technology-themed acquisition company, which is backed by activist investor and fintech aficiondo Dan Loeb.

tom-farley-fintech-spac
Tom Farley, Far Point Acquisition Corp

42-yearold Farley, a Georgetown University alum and former ICE senior executive and the second youngest person to serve as NYSE President when taking on that role in 2012, will serve as CEO of the ‘fintech buyout’ company. Farley is arguably one of the industry’s most fintech-fluent folks, given his role in helping to transform NYSE into a financial industry trading technology centerpiece.

Farley’s long-held view towards the future is evidenced by the fact  NYSE’s two most dominant designated market-makers aka “DMM” firms, GTS Securities and Virtu Financial are companies that are synonymous with the phrase fintech. Both firms started their journeys as prop trading firms specializing in ‘high-frequency-trading’ and their more recently attained NYSE ‘specialist’ roles are powered by next generation in-house algorithmic trading and artificial intelligence tool kits. GTS Founder Ari Rubenstein, whose NYSE DMM is responsible for maintaining fair and orderly markets in 1200+ companies and who also oversees one of the industry’s most robust, multi-asset liquidity-providing prop trading platforms, is also a founding member of industry trade group Modern Markets Initiative (MMI) 

Back to SPACs- For those who may have missed the multiple memos coming out of the biggest investment banks, the blank check company construct provides a means to create a publicly-traded ‘shell company’, whose use of proceeds is intended to acquire a private company (or companies) and seamlessly “jump the shark” by rolling the private company into the publicly-listed company without bearing the burden of the time and cost that is synonymous with taking a company public via the traditional IPO process.

First introduced in the early 1970’s, blank check companies were soon derided by securities regulators after a string of capital raises by companies that had notoriously little corporate governance, enabled unsupervised CEOs to empty corporate coffers for personal gain, leaving investors with nothing. In the early 1990’s, the construct was re-invented by small-cap investment bank GKN Securities’ founders David Nussbaum, Roger Gladstone and Robert Gladstone, who have been credited with introducing the SPAC construct (along with securing a trademark for SPAC), which is chock full of checks and balances. The GKN leadership team’s early success in floating ‘blank check’ companies led to their creating a new firm, EarlyBirdCapital which has become the thought-leader in SPAC offerings, as the SPAC template has since been emulated by the financial industry’s leading investment banks and endorsed by major exchanges across the globe.

In the past 10 years alone, tens of dozens of capital raises via the SPAC construct have delivered billions of dollars of dry powder for designated acquisition companies that have since effected tens of billions of dollars worth of ‘quick IPOs’ for companies in nearly every industry sector, including the cannabis industry,

Fintech industry veteran and startup industry consultant Jay Berkman, who coincidentally helped GKN introduce their first SPACs to institutional investors back in 1993, and now serves on the advisory boards of fintech merchant bank SenaHill Partners and investor document consultancy Prospectus.com LLC said, “Far Point Acquisition may not be the first Fintech SPAC, but its launch clearly reinforces a compelling approach to raising capital for the purpose of bringing established private companies into the publicly-traded ecosystem.”

Via video clip below, former NYSE top gun Tom Farley expresses his views on the SPAC construct and the fintech sector, and provides a glimpse at the prospective target acquisitions that Farley will be aiming for.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com.

Former NYSE president announces IPO for ‘blank check company’ from CNBC.

Continue reading