Fractional Ownership

Speakers

Oscar Jofre

CEO and Co-Founder

KoreConX

Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Peter Daneyko

Managing Director

KoreConX

Peter Daneyko

Managing Director

Entrepreneurial business development executive who brings ideas and people together for the delivery of new products and services to market. The start-ups that I helped found have produced a variety of innovative applications and new businesses with measurable results. They range from downloadable marketing and educational tools to custom digital signage to on-demand apparel manufacturing. Founding partner of Whimsy Rose, a print on demand apparel brand; which has produced and sold over $20 million worth of apparel through its in-house developed production system. - https://www.whimsyrose.com/ Founded AppWare’s, creators of Deskplayer, - a marketing application design company that produced apps generating over a million downloads for brands ranging from Sony Music to Budweiser, to Marvel. Developed, and delivered customized video delivery and educational communications tools for corporations such as Deloitte Worldwide, to the Pharmaceutical industry for the on-demand delivery of accredited professional development educational courses to Physicians. New Initiatives: A co-branded community-based photo-apparel label and an On-Demand consumer profiling/persona services company. (ProfileNINJA) by http://statanalytics.ca & http://www.didanalytics.com Specialties: • Strategy for Business Development • Maximizing Sales • Analysis & Forecasting • Enterprise Sales to Senior Executives • Program Planning & Implementation • Product & Market Identification • Communication & Negotiation

Laura Pamatian

Founder

HeightZero

Laura Pamatian

Founder

Tyler Harttraft

Partner

Bull Blockchain Law

Tyler Harttraft

Partner

Richard Johnson

CEO & Founder

Texture Capital

Richard Johnson

CEO & Founder

Oscar Jofre  00:48

Well, good afternoon, everyone and welcome back. Once again, we’re back with KoreSummit day two real estate, the Jobs Act, and liquidity. This afternoon, the conversation is going to get very, very fun. We have some great speakers coming up lead by Peter Daneyko and his fellow colleagues, they’re going to be discussing fractionalization in real estate and everything that has to do with it. So, Peter, the floor is yours. Enjoy.

 

Peter Daneyko  01:21

Hey, thanks, Oscar. Are we on here?

 

Oscar Jofre  01:33

I believe we are. I don’t think your cameras on but that’s okay. You know, I’ll come in and you know, of course, the technical difficulty needed to happen sooner or later, so something must happen there. Alright, so we’ll Yes, we are on Turn on your camera there. Mr. Daneyko. Probably have too many buttons to play with.

 

Peter Daneyko  01:53

We’re going to turn this on again, everybody. Just bear with us for one second. As we jump into the session, the camera was on and we’re going to get back on track here.

 

Oscar Jofre  02:02

All right, keep going.

 

Peter Daneyko  02:04

All right. Hey, I’d like to welcome our audience and I’d especially like to welcome this what I believe in an extremely engaging panel. So first, a couple of quick introductions here. So everybody has a bit of color on who’s who. From our panel. So we’ve got Tyler Harttraft from Bull Blockchain Law. So blockchain law very specific category that we’re going to be talking about. Speaker, author, and member of the blockchain association, Tyler’s firm is dedicated to cutting-edge smart contracts, which we’re going to touch on blockchain technology. Welcome, Tyler. I want to introduce Laura Pamatian CEO of Height Zero Real Estate. One of the oldest advisory firms in the blockchain space focused on real estate, and a focus on leveraging environment using, artificial intelligence and blockchain technology, and everything that relates to real estate and quarterbacks, lots of companies in this regard. And last, but certainly not least, from the broker-dealer side of the equation, I’d like to welcome aboard Richard Johnson, CEO of Texture Capital, one of the few companies actually licensed by FINRA as a broker-dealer of digital assets securities. So certainly on the cutting edge of things, as well as Texture operates a fully registered SCSD alternative trading system, we’re going to touch on that to match investors and buyers and sellers. So everybody, welcome aboard. Jumping in the term we’re talking about today is tokenization fractionalization. A lot of these, these so-called buzzwords that hopefully we can give them some color and some clarity today. My experience over the last few years is pretty much that I get comments daily from clients such as can I tokenize, this? Well, we live in a permission blockchain environment at KoreConX. So kind of everything we do is a little bit about tokenization. But first and foremost, it’s about regulations and compliance. And depending on the regulations and the securities being offered, I think we’ll jump into the narrative and the conversation on what is that all about? And I’m going to jump over to Tyler right away from the legal perspective. Tyler, from the legal side of things, we hear the term token chain to blockchain tokens. It’s all on the news. Give me your definition of tokenization and how that relates to his security because it’s certainly with the FTX fiasco and the ICO world. Those are two different worlds. And maybe you can give us your legal insight on that.

 

Tyler Harttraft 04:54

Yeah, absolutely. I mean, that’s to your point. There’s not very much that can’t be tokenized but that doesn’t necessarily mean that’s something that should be tokenized. And so there’s a lot of layers to peel back as far as tokenization and exactly what we’re speaking about, we’re usually referring to trying to determine what the underlying asset is. So you know, any FTX scenario an FTT token might represent ownership to a particular indebtedness. And so that would be a token that represents one underlying asset, whereas a security token might represent an equity stake in a company a share of stock, an LLC, a limited partnership interest, a limited liability company interest. And so when we’re working with clients, the first order of business with respect to digital securities issues, identifying the underlying asset that will be tokenized. And then looking to determine, should we tokenize that, why do we want to tokenize that, obviously, there’s a lot of benefits to tokenization, mainly liquidity, or the anticipation that there will be liquidity for a particular asset. Once a lock up, restrictions have been lifted. But there are a lot of considerations that come into play, there’s a lot of regulations to be aware of. And, you know, that’s what we’re here to work through clients with. Just because we have a token doesn’t mean the securities laws go out the window, doesn’t mean that tax laws go out the window. Additionally, there are Investment Company Act regulations, there’s Investment Advisor Act regulations that needs, clients need to be aware of. And so all of these regulatory frameworks play into the analysis and must be considered with respect to tokenization. Because we’re really talking about a technology overlay, not necessarily something that, you know, can skirt, the securities laws, in some circumstances, a token does represent something that is potentially other than a security potentially not an investment contract. So lots of token issuers out there that are generating tokens as a means of governance, a means of an economic incentive for a particular protocol, or ecosystem or layer solution. And so in that context, you might have a token that maybe it’s sold as a security initially for capital raising purposes, maybe it’s supposed to eventually represent governance, a governance token, and not necessarily a receipt to profits, or any earnings of the issuer. And in that circumstance, the question becomes very muddy, as far as is the security is this not? And so, like I said, a lot of layers.

 

Peter Daneyko  07:38

A lot of layers, you hit a lot of points, which you touched on regulation, you touched on assets, you talked touched on liquidity. So let’s dive in a little deeper when it comes to real estate in particular. Laura, your experience from a real estate perspective, you’ve been involved in the real estate market for a significant part of your life, you’ve jumped into this whole concept, and we’ve had lots of conversations about, hey, I want to tokenize this particular real estate, what are some of the key conversations that you’ve had, and maybe some of the friction points or misunderstandings around real estate and tokenization?

 

Laura Pamatian 08:16

Yeah, I think Thanks, Peter. And I think that, you know, with tokenization, we say that word and people, there’s different people that will think different things, right? So tokenization, of real estate is the aspect of creating a nonfungible token to transfer real estate assets, right in their entirety. So that would be one form or one interpretation of that another’s to tokenize existing equity, right, the asset has equity. And we’re able to create the option of liquidity by tokenizing shares of that equity, then also through raising capital, right, which is a whole other ballgame. And like we keep saying, the securities law, the the framework that’s in place is adequate, right for raising capital, and then tokenizing. That security, right? I think people will say security tokens and tokenized securities and don’t realize that there’s a difference. I think there’s there’s an issue there as well.

 

Peter Daneyko  09:22

Can you elaborate on that a little bit. You said security, security tokens and tokenized securities? Whether you are if somebody wants to weigh in on that a little bit?

 

Laura Pamatian 09:33

Yeah, so I, you know, when we say security tokens, we refer a lot of times to tokenized securities when we’re talking about real estate. But when in other aspects of the space, a security token could be your access to say, my bank account, right? I have a security token that gives me access to my bank account. It’s in the terms of Safety, right security in the terms of safety rather than a security, right, a financial security, which is tokenized securities,

 

Peter Daneyko  10:12

so Okay. Okay. So there are, again a lot of definition that, that revolves around the concept of tokens and the concept of tokenization. So let me, let me ask, let me ask Richard from this perspective. So as a broker-dealer, and when it comes to tokenized securities, what do you see in today’s specific to the real estate? And do you begin with the asset being the real estate? Or the project you’re going after? Or do you begin with the regulations? Or do you begin with? Who are you trying to sell it to? Or do you begin with the corporate structure? There’s a lot of pieces there. And where do you where do you begin? And what’s your experience on that?

 

Richard Johnson 10:55

Yeah, thank you, Peter, I just want to kind of touch back on something that Tyler was talking about where, you know, in the realm of tokenization, there are lots of different tokens out there. Dowel tokens, NFT’s and so forth. The thing about real estate when it comes to real estate tokenization unless you’re talking about putting the actual title on blockchain, pretty much everything is going to be a security of some kind. So that’s, yeah, that cleans up some of the confusion, I hope, because, you know, it meets the four prongs of the Howey Test, it’s an investment of money based on the efforts of others with an expectation of profit, etc. And I think that’s what people are used to when they’re investing in real estate is, you know, they see the term sheets, they have a preferred term of this, and the investment of that, and so forth. And what we’re doing, what we’re doing in the tokenization space is essentially kind of replicating that in token form. So we kind of mirror a lot of the kind of the PDF documents that we’re used to seeing, put that into a token form, put it on the blockchain. And I think one of the big advantages you get from that is, you know, first of all, a lot more transparency. Did you think about real estate, it’s a very large market, it’s not very transparent, necessarily. So we can improve that there. It’s also typically not very liquid, a lot of fund structures are normally five to seven years, and some real estate projects can last longer than that. So what we aim to do as a broker dealer, is help provide liquidity for these types of projects. And we’re able to do that by leveraging blockchain technology. So we employ, first of all, we have a complete record of securities ownership and transaction history. And we can place employee smart contracts to, you know, programmatically enforce compliance rules such as a one-year holding period, if it’s a Reg D offering. Maximum number of shareholders, which could be 99, if it’s an LLC, or it could be, could be 2000, if it’s a C Corp, and so forth. And then, you know, by having this kind of digital layer, these programmatic smart contracts, we will be able to kind of improve the workflow, streamline liquidity onto our ATS and enable secondary trading. You asking kind of what we’re, you know, what we’re here, how do we approach this space? For us, it’s appropriate, we’re here to serve our clients. So we look at different structures. And normally the client comes to us with a framework in mind, and we’ll kind of advise and consult with them, and help them bring it to market.

 

Peter Daneyko  13:19

You touched on something that comes back to the regulations, again. You said a Reg D, and you said it is a 12-month holding period. Let’s start with the regulations a little bit and where they fit in or don’t fit in, or where, where some of the friction points might be. So let’s, I’m existing im a point this to Tyler and then to Laura. So I’m an existing shareholder. And I’m and I invested in a Reg D. And  my understanding from the Reg D perspective is the information associated with what my rights are as an investor in that Reg D are varied as, as every individual company. So after this 12-month window, it doesn’t just arbitrarily gives me this ability to have a liquidity event. Would that correct? Or maybe you can give me some more insight into that from a legal perspective?

 

Richard Johnson 14:13

Sure, Peter. Yeah. So the Reg D regulation as a 506. C is one flavor and then 506 B is another. Generally, we’re talking about 506 C, which is what most capital is raised under because that allows you to generally solicit investors with a 506 B, you can accept up to 35 nonaccredited investors, but it doesn’t allow you to advertise so it’s much less useful for most capital raisers. Especially in the real estate context. So So with respect to 506 C, you can raise an unlimited amount of money from from investors, accredited investors generally solicit and your lockup restriction under Reg D is going to be 12 months. There’s an opportunity Gonna need to trade that investor to an accredited investor more quickly under Rule four, a seven, the FAST Act, but there are some additional requirements to be met. But generally, when we’re talking about the liquidity of them, we’re talking about the expiration of that 12-month lockup and a sale from the primary purchaser to a secondary purchaser. And so with many, many of these solutions and exchanges that are coming online, they’re offering that opportunity that marketplace for those primary purchasers and secondary purchasers to transact.

 

Peter Daneyko  15:36

Okay, so you mentioned like, we’ll focus a bit on the Reg D. So I hear that a lot. And Laura, we’ve had conversations about when it comes to a Reg D. Hopefully, after 12 months, I can trade let’s make the assumption that all the articles associated with that reg deed is equitable, and everybody can trade those shares. But where do I trade them? Maybe this is focused more on Richard because you’re on the ETF side of it. So where do I trade them? And what does that look like? And what are my limitations under the different regulations? So I’ve got? We’re going to talk about a 506 C and REG D right now.

 

Richard Johnson 16:16

Yeah, well, it’s a rectory requirement to trade them to trade securities where you can trade them kind of the there’s a few kinds of exemptions within the real estate space where members of an LLC can trade membership interests between them. But if you want to reach a broader market, you generally need to go through an ATS, which is operated by a regulated broker-dealer, such as Texure Capital, we’re regulated by FINRA, we have an ATS, which stands for alternative trading system. It’s actually the Reg ATS, which kind of gave birth to two ATS as part of the Exchange Act. So an ATS is similar to an exchange but it’s a lower threshold to qualify for it. So yeah, that’s kind of that’s our goal and that of many others in the space is to provide liquidity on the platform matching. So that you know, met people who’ve purchased the securities and the primary offering, you know, if they want to have some liquidity, if they want to sell the security after a period of time, then they can find by other potential buyers and sell to them on our platform. And I think we find a general advantage, what we often hear from folks is that certainly from issuers, even if it’s a Reg D, and even if there’s not going to be any liquidity for a year, the issuer likes to be able to say that because it helps them get primary investments. So for example, they might have an investor who wants to invest, but their kids are going to college for a few years, or something like that, or maybe there’s a life event and they won’t be able to have some kind of liquidity option in case. You know, in the event that something comes up, so we’re able to provide that to a lot of these firms.

 

Peter Daneyko  17:51

Okay. Yeah. So okay, so what I’m hearing is then the little liquidity side of it, I can put my shares up from a layman’s perspective. I invested in a Reg D, I’m an accredited investor, and I can sell them to other accredited investors, or at least make them available. Now, who makes that decision? Is that the company making the decision? Or can I just randomly say, Hey, I own some shares. So maybe walk us through that process a little bit. Whether it’s a Reg D, or Reg A, or Reg S, or Reg CF for that matter?

 

Richard Johnson 18:22

Yeah, in private and private markets. And private markets, typically the issuer or the GP, or whatever the structure is, would need to approve secondary transactions. So you can’t just have trades necessarily going off without their consent. The issuer, generally speaking, needs to be involved. If it’s a registered offering, that’s not the case. I don’t know if anyone else wants to chime in on that.

 

Tyler Harttraft 18:46

Yeah, and I mean, typically, you know, platforms that are allowing these trades, they want a legal opinion stating that, okay, this season, the securities of season two, the lockup restriction no longer applies. And now these particular investors who have held since their purchase date, more than 12 months ago, can now trade legally on the platform. And so that, that’s one of the items that we assist with is rendering that opinion at 12 months after the purchase date for each of those, those investors. So that’s the, you know, the GP or the issuer where authorization at that point for them to go trade. Typically, we’re stripping out a lot of those restrictions that are traditionally baked into those operating agreements or limited partnership agreements. And there’s very standard language in many templates that say, the GP has a right to deny or overall request an opinion of counsel from the individual investor before allowing any tokens or shares to trade. And with tokenization you know, it’s really beneficial to strip those out from the onset and to make that a much more smooth transition once the tokens are are able to be traded on a secondary market. 

 

Peter Daneyko  20:02

So legal is that go ahead, Laura? No, no, sorry, I don’t mean to jump in. Go ahead. I was gonna say that it’s absolutely critical that at different junctures, you mentioned the lockout period on a Reg D. For example, you need the advice of that lawyer. It’s not. And I think this is where some of the nebulous viewpoints come in from the public at large, where they go, Hey, I’ve tokenized this. And I can immediately do something with it. But there are a lot of other factors that come into play when from a legal perspective, as well as what the intent of the original issuer was. So it’s not as easy as just saying, I think a lot of people cross over or muddy the waters when it comes to, oh, the ICO world, or an NFT world, oh, I bought this and I just, I just go out there and do that. We’re talking about securities here. So if we’re talking about securities here, and I’m going to go into I’m a real estate developer, and touch on you, Laura on this one. So I’m a real estate developer, or I have an existing real estate property. And I want to basically securitize it. In essence, I want to turn it over to security fractionalize because part of this conversation is fractionalization. What’s my jumping-off point? Do I choose the regulation? Do I choose my valuation?

 

Laura Pamatian 21:26

You know, I just wanted to kind of follow up on what, what we were talking about. And this is, you know, to this question, as well, is that the idea behind the option of liquidity, right? If I can raise a limited amount of capital under Reg D, and I raise, I don’t know, $100 million from 10 Investors that put $10 million into my offering, right? How much liquidity am I going to be able to give them on the back end, right, if one of those investors decides to trade out of their $10 million, and they go to an ATS, and they trade, and they bring in another? I don’t know, 1500 1800? New investors onto the cap table? How much liquidity do those other investors have that brought in the $10 million? Right? They, they, you really don’t have that? The unlimited number, right for them to actually have the option of liquidity, you can only have 2000. On your table? Right? Isn’t that kind of where you were going with that?

 

Peter Daneyko  22:31

Yeah. So where does that limitation come in? And maybe, you know, at least being aware of where the regulations fall in and maybe tighter? And Richard, you can chime in on that. So if I just look at the pure math of it, eventually, if I’m limited to 2000, before I’m fully reporting ORed, or can I restructure it down the road? But at least be aware of it upfront.

 

Tyler Harttraft 22:52

Right. Yeah, not regulation, I can jump in on that the regular regulation comes in under the Exchange Act, rule 12 G, and right, it is a limitation. You unless you want to become a reporting company. The rule is, if you have more than 2000 investors and 10 million in assets, then you’re going to have to become a reporting company. And so companies have to make that decision very, very early on when they’re deciding on their metrics, what is my minimum investment amount? How many investors am I going to accept? All of those decisions are very important at an early stage. And that’s really a Reg D consideration that you need to address at the outset.

 

Peter Daneyko  23:33

So, so no, I think that’s a really salient point. And I think historically, when I talk, to clients, when it comes to things like Reg D, the comments are, oh, I’m never going to have 2000 shareholders? Well, it kind of defeats the purpose if you’re going to tokenize an asset, and they’re going to break it down to pieces and you’re going to break it down to pieces. It’s I think it just merits you know, a big consideration upfront, there’s, there are significant benefits for Reg D if you have an accredited investor pool. But if you’re just going to do marketing to the accredited investor and have no market awareness, which is kind of the next section segment we’re going to talk about. You may want to look at some alternative regulations from the onset perhaps and when I look at something more sophisticated like a Reg A plus offering, I may be limited for my 12 months on that Reg A to $75 million but I can have unlimited, accredited non accredited investors. So Richard, what are your thoughts on that as a broker-dealer Are we starting to see a little bit more companies starting to go let’s take a look at the Reg A because of the variety of liquidity options that it affords ATS and other

 

Richard Johnson 24:49

Yeah, I think Reg A is a much more interesting space because of the greater number of shareholders you can have. You can have, you know, as many retail investors as you like, you can still raise up to 75 million in a year, which is a good amount. And there’s no holding period. So there’s a lot of pluses for that Reg A plus. The downside or the flip side of that is, is that it’s more expensive. You need to pay X and lawyers like Tyler to get yourself qualified with the SEC. And it can take something like six months or so to do it. But if you’re if you have a product that you think is going to have a broader reach, and you think you can access it and not to mention that there’s any other marketing campaign around it. But if you think you have that type of product for that type of platform, then yeah, that’s definitely something you should consider. And it’s something we’re seeing a lot more of at KoreConX. 

 

Peter Daneyko  25:43

Yeah, we’re seeing a lot of companies in the real estate taking advantage of a Reg A, it’s simple as that. They’re looking at the Reg A, and they maybe remind me to, I want to do want to touch on like series LLC is, for example, even on the real estate side of the equation, but they’re taken advantage of, but one of the comments that I just want to make to the audience is, there’s a lot of moving parts here. And very often I we get approached from, you know, where the technology kind of linchpin where we’re the hub and spoke where we have to connect and engage with the broker-dealers engaged with the lawyers engaged with escrow providers engaged with the SEC engaged with the payment rails. So we get a high-level broad understanding, but one of the things that, that we find that many issuers start to miss this, who’s gonna manage all this? So internally, they have to take these considerations. And I bring that up, because Laura, you kind of quarterback a lot of these things right now, and what some of the conversations that you’re having when it comes to that. So let’s say want to do a Reg A offering, I mentioned a number of the intermediaries associated with that. Where does a quarterback come in? To assist an issuer for example?

 

Laura Pamatian 26:54

Yeah, we more seeing a huge need in the space right now, for those that don’t really know where to start. Or how to get through that process. And, you know, we start with, you know, just going through the budget, right? What’s, what’s this gonna cost? What is the budget look like? And we’ll write a line item budget for the client, and we’ll have the conversation of what type of, you know, what’s the long-term goal where what is the plan for the company? You know, what type of investors are you targeting, et cetera? And we’ll try to figure out what makes sense, and partner them with the right attorneys, right? Well, blockchains, an excellent attorney, and excellent firm as well, and we walk them, you know, we kind of partner them with them, we’ll have the conversations, we’ll be there to help guide and assist. There are many partners that are involved in a security token offering, especially if they’re raising capital for real estate. So there’s the technology, right KoreConX says it is an amazing platform that will help manage the cap table, they’ll help automate a lot of the processes automate district distributions and and communications with investors. We talk about why it’s important to work with the right marketing firm, right? We’re not marketing, real estate, marketing securities, we’re talking about, you know, jurisdictional compliance, and those kinds of things. Custodian custodial compliance, so there’s all these pieces of the puzzle that need to be put together. And we try to make sure that the client understands that this is a marathon, it’s not a sprint, right? We yes, we want to raise capital, we want to do that quickly. But we have to do it compliantly. And here’s how we’re going to do it. And we walk them through step by step.

 

Peter Daneyko  28:39

I think you hit it, you hit on a lot of points there. So it really takes a team. I mean, again, from you mentioned the lawyer you mentioned you know, from preparation and from that standpoint. Tyler what’s been your experience with if a company jumps off on the wrong foot and says Oh, I thought coulda shoulda woulda I decided to do this regulation. But I didn’t think that the fact that okay, I did my filing and it cost me, you know, 50 to $75,000 in a Reg A without fair assessment. And, but I didn’t consider that it’s going to cost me X amount of dollars in marketing, for example. What are your takeaways, you get clients coming back to you, you know, you’re the lawyer, you’re the guy that that saying that it’s starting that journey and saying, Why didn’t you tell me that there are all these other moving parts? Or is it just, hey, I did the legal filing? And that’s it?

 

Tyler Harttraft 29:34

No, I think it’s an excellent point, Peter, because we do act a bit as gatekeepers in that respect, in that we, you know, there’s no benefit to sending a client through that process. And getting halfway down the road and realizing there are all kinds of unexpected, it’s forthcoming. And so what we do in the early stages of the process is really work to identify those hurdles. And then to define how we’re going to address Ask them and to make sure that the regulatory path chosen is the one that makes the most sense. And even with tokenization, there is a half measure that we sometimes recommend to clients, you don’t need to tokenize immediately. Obviously, you have 12 months until the law, if we’re talking about a Reg D offering, you have 12 months until that lockup is going to expire. And so you have an opportunity to leave the door open for tokenization and your documents, while not necessarily tokenizing at the outset, and so maybe 12 months down the road or six months down the road, you decide, we definitely do want to tokenize our investors have an appetite. They’re looking for liquidity, the raise went really well. And now we’re positioned for tokenization. And so that’s an option as well, that we talked through with clients. And I just want to say, I think, you know, this can sound a bit daunting, but at least from a legal perspective, much of what we’re talking about are exercises that we go through with clients, whether it’s a traditional race horse or a digital security race. So it’s not necessarily to say that it’s going to be so much extra legal work, it’s just there’s an added stress on the regulations that affect the liquidity of the investor base.

 

Peter Daneyko  31:12

Thank you for that. So I’ve got I’m going through this journey, I’ve got my lawyer, I’m doing a Reg A offering. I receive a lot of different structures, like I may see a company in the real estate space, that’s saying, we’re acquiring assets. So at the highest level, the company’s going and we’re going to pay dividends. So from a corporate perspective, we’re managing the capital and managing the shareholders, but everything’s digitized right from the onset. If a company wants to have a liquidation event, and what I’m referring back to there, as a company might be a company that says, I’m going to buy real estate in the sector, we’re going to manage the properties. Once we manage those properties, we’re going to pay dividends. So here’s an example of somebody saying, I’m going to do a Reg A offering, and the purpose of I want to we want to attract investors that are interested in dividend payouts. But further down the road a company like that might say, hey, we want to have a large liquidity event. And I want to what are my options. What do I want to do? We want to sell off the assets. We don’t want to sell the company. Or we want greater flexibility, or I want the shareholders the ability to at least liquidate their assets, even if we have performed performance dividend payouts. And I want to go to an ATS. So to you, Richard, because we get a lot of counts like this right now when I’m going okay, we’re there already as far as we’re concerned. They’re already on a blockchain. I mean, they’re in essence, these securities are tokenized. It’s just a matter of moving to an ATS. What’s that process look like? Richard? The company says, now I want secondary trading. Well, if

 

Richard Johnson 32:56

they’re already working with up to KoreConX, and we already have an integration, it’s gonna be very straightforward.

 

Peter Daneyko  33:02

I set everybody up on that one a little bit because it’s early in the game still early. And they see in the game when it comes to secondary trading. But from your perspective, I mean, I wanted, we handed off so to speak technology, hands off information flow from part A to part B, and part B happens to be an ATS. And what is it? But what does that look like? What are the what is the issue? We have to go through? Okay, I want to do this, and what are the downsides and what are the expectations that are realistic?

 

Richard Johnson 33:35

Yeah, well, they need a couple of things they’ve already issued. And then later down the road, they wanted to tokenize perhaps after the one-year holding period, they need a couple of things. They need to work with a partner who will help them issue the tokens. And maybe they’ll work with you, Laura gives me advice on what blockchain to use or what partners to work with. And I’ll link that up definitely need transportation as well. KoreConX is a transfer agent. And due to both those functions, in fact, that’s the main things that they need to do, we could work with them as well and kind of guide them through the process. Essentially, the transfer agent will look too kind if they didn’t have one already. You take that cap table and put it into a kind of blockchain format, we would need to integrate with the transfer agent from our point of view. So for example, we need to make sure that if somebody wants to sell the trade, what we do is we you know, we look at we open an account for them. First of all the buyers and sellers need to have accounts with extra capital that lead to VYC, etc. But once they enter if the seller enters a trade order, what we’ll do then we’ll go we’ll read the blockchain by the integration that we have to make sure they have the share they want to sell and then that’s entered into the ATS if there’s a match. We then communicate with the transfer agent and the cash custodians to make sure that the Securities and the tokens are moved after the cash has moved after the trade.

 

Peter Daneyko  34:58

Okay, and at the end of the day, The cap table is updated with the new shareholders associated with that trade, and the trades are all done in real-time. I’ve got a question here that that from the audience here, and I just throw that at the panel here. I assume discussion of tokenization, you include all aspects of smart contracts, what terms or conditions cannot be included in such a smart contract? questions a little bit? How long is a piece of string? I think, but does anyone who wants to jump in that Tyler?

 

Tyler Harttraft 35:30

Yeah, so the smart contract in this context is mainly going to govern who can purchase the token. And so you might have risk jurisdictional restrictions, you might have accreditation restrictions. And so in the securities context, those are primarily the terms that are going to be baked into the smart contract restrictions. In other contexts, there is a lot you can do with smart contracts. Lots with that you can do with NFTs and IP rights and licensing and things like that. And so that opens up a bit of a can of worms. That’s kind of separate from the talk today. But it’s certainly a good question because smart contracts are so flexible and diverse.

 

Peter Daneyko  36:15

Okay, thanks for that. Again, it comes back down to the term tokenization has a variety of meanings. I mean, at the end of the day, from a security perspective, we have a smart contract, it’s tied to a security versus other types of immutable, Ledger’s that are smart contracts between a variety of parties, something that came up yesterday, that, I mean, if we had a crystal ball, we’re looking into the future because it’s, it involves a lot of jurisdiction dictions when it comes to land titles. The one thing I think that a lot of people need to realize is that there’s a big friction point today, when it comes to I’ve got an existing real estate asset, I want to tokenize that asset. And I don’t want to get into the securities world, I know that Germany is doing some interesting things in the tokenization space for that purpose. But how do we, what do you foresee in the future? Like does land title’s or is it too bureaucratic? And then, in the near future, get tokenized slash digitized slash smart contracts orientated? Any thoughts in this regard?

 

Laura Pamatian 37:31

I mean, I would, I hope so. Right? I think in the US, there are 3033 counties, and they all do things different. So I think that has to be streamlined first. And we need to figure out how that how we can all kind of get on the same page with how that happens. And then we can, you know, move into mass adoption on tokenizing and transferring products through tokenization, and NFTs etc. But right now, it’s there’s a very long road, I think, for that in this country anyway.

 

Peter Daneyko  38:03

So I tend to agree with that. I think it’s really important for the audience to say, if there are these significant friction points today, I mean, things evolve, things change. And all of a sudden there can be a major pendulum shift. But it sounds like taking a look at the regulations that exist today. Such as I’m a fan of Reg A because it’s probably the most flexible open regulation that existed. Tyler is probably a fan of it because it’s the most it because it’s a sophisticated offering, and it certainly benefits the legal community, but it does benefit the issuer. If they go into it with an open mind and really understand what’s involved with that. It sounds like that’s if you want to tokenize real estate, take a hard look at a Reg A plus offering because I’m not here, I have no benefits. And from that perspective, other than just to say, or get your guy’s thoughts on that.

 

Richard Johnson 39:01

Yeah, I think can we dig in a bit more on the series LLCs? Because I think that’s an important part of fractionalization. And I know we’ve only got a few minutes left here. Yeah. That’s, you know, just to say that we’re seeing a lot of that right now. And what a series LLC is, is essentially it’s a legal structure. Where, for example, in the real estate space, a real estate sponsor could offer many different assets, and many different properties under the same kind of Reg A filing. And then so each of these is they individually LLC is each LLC can be tokenized. And what we’re seeing a lot of is folks in the real estate space creating marketplaces where investors can come in retail investors because the Reg A offering and pick and choose, you know, I’m going to put you know, $1,000 into your 123 Main Street and maybe $550 into, you know, four to four high street or something like that. And build their portfolio to have real estate assets on a fractionalized basis, then get exposure to different types of properties, different locations. And we’re seeing lots of very interesting story structures there as well like you’d have multifamily or commercial or home equity investments. An exciting project we’re working on right now. So we think that’s a big growth area. And, you know, that’s something we’re partnering with you guys on.

 

Peter Daneyko  40:21

We know we’re seeing a lot of that. And I don’t know if Laura, you’re seeing a lot of, you’re seeing a lot of companies that are in the real estate space, but it’s not just the large project to say, Hey, I’m gonna do I need, I have a $300 million project. It’s smaller companies saying, Hey, I’m really I’m an expert in residential real estate. And I am going to do a series LLC, do asset acquisition and multiple properties, and allow participation from multiple individuals with small pieces that really couldn’t participate before. And that’s the one most wonderful thing I love about not just the series LLC, but the Reg A in general. I mean, I can individuals, I think you’re going to start to say to the investment community, you have the ability to your kids, for example, to say, Hey, you want to own a small piece of a house, you have that ability to start that journey and build up your own portfolio. So yeah, thanks for that, Richard, because the series LLC, we’re seeing a lot of that in a variety of different categories. And that’s where the Reg A plus really, really affords a lot of different opportunities. Laura, are you seeing get more inquiries in that regard?

 

Laura Pamatian 41:30

Yeah, definitely. I mean, we’re doing a lot of education on that right now. You know, the majority, of the offerings that are being done in real estate are under Reg D. So, you know, we start talking about other options. And, you know, the, you know, this is a process trying to educate, but there’s a lot of interest around it when they realize, you know, what could what the potential is, and I really, truly believe that, that there is going to come a time soon when investors start to figure out what their options are that they’re going to ask the owner or the issuer. You know, is this tokenized? Is this, do I have the option of liquidity? If I invest in your real estate project, and that’s going to be something that is going to be really important to be able to say yes to

 

Peter Daneyko  42:17

No, I think that is an excellent point. I think we’re gonna we’re getting into our final minute here. Any final takeaways from the panel here? I think it’s been insightful. And I want to just make a comment that all of the information on each panel member here from Richard to Laura to Tyler is posted on the website and should feel free to reach out to them individually. Should you guys have any questions? Anything else closing comments?

 

Laura Pamatian 42:49

I just want to say thank you, for, you know, everything that KoreConX is doing, always educating, leading the space, always trying to, you know, enforce and make aware how important compliance and regulation and all of those things are. So I really do appreciate what you guys are doing. So thank you for that.

 

Peter Daneyko  43:08

Thank you very much appreciate education’s kids still. Was that Richard there?

 

Peter Daneyko  43:20

appreciate it is education. Look. Some people said, you know, where are these regulations at Where’s ATS is? You know, where are the legal changes? Where’s the regulation changes what’s going on in the future? And, you know, I thought we were on first space, and a lot of people still believe the stadiums just being built. So there are a lot of opportunities for the future. I think, again, education is absolutely key, you know, key closing out, I saw a comment here. And it’s, you know, I thought blockchain was supposed to be trusted, you know, a trustless. But now we have intermediaries. We live in a world of regulations. And we live in a world in compliance today, whether we like it or not, we only complain about regulations when they appear to get in our way. But then we ask for the regulations when I’m on regulated. And I may have, unfortunately, been taken advantage of. So I mean, there are two sides to the coin. And I think the future holds well for the regulations. Hey, I’d like to have no regulations, and the entire planet is all trustworthy. But unfortunately, we don’t live in that world. So again, thank you to our panel. And now we’re going to jump into the next set session for those that are with me and say, Okay, I’ve done the regulations. When I understand the regulations, I’ve got my team put together to move forward. And now I’ve got a little bit of heavy lifting. It’s called the marketing side of it. So for those of us watching right now, I invite you to join us for the next session. And again, thank you all. I really, really appreciate the time.

 

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