• Nov 20, 2019
In this issue, we take a look at Sosnow & Associates PLLC. Lawyers are an essential part of any team issuing digital securities as the industry has struggled at times to navigate existing regulations while driving forward with its fundamentally disruptive technology.
We spoke to Robin Sosnow, the Principal and Founder of Sosnow & Associates PLLC law firm, about her legal perspective regarding digital securities and her experience helping multiple companies get their DSO over the line.
1. Please give us a brief background on Sosnow & Associates PLLC and its relationship to the digital securities industry.
Sosnow & Associates PLLC was founded five years ago and is a boutique, tech-forward law firm headquartered in New York City with our west coast office in Orange Country, California. Our firm focuses on assisting with corporate, securities and real estate matters. The majority of our clientele are involved in the capital raising landscape; either as the business that is raising capital (i.e. issuer) or as a participant in that effort, be it a marketer, platform, funding portal or broker-dealer. The firm has been growing over the last year. We formed a joint venture practice in 2018 called Digital Securities Law Group, which focuses on serving clientele who are seeking to tokenize their assets or are otherwise active in the blockchain space. Our most recent announcement has been the merger with Amy Wan’s firm, and integration of BootStrap Legal into our service offerings.
2. When and why did you decide to focus your practice on digital securities offerings?
I’ve been incredibly fortunate to have gained ground floor experience with the JOBS Act and thereafter technological innovations like blockchain. I learned about the JOBS Act while obtaining my MBA, before it was signed by President Obama, and I was an immediate believer. As the founder of a small law firm, I was able to support first-adopter clients who similarly were seeking to embrace the power of the crowd – their communities, customers and Main Street investors.
In 2017, I was brought in to support a “big law” firm in a Reg A+ transaction in which the client was seeking to tokenize its equity. My interest was peaked and the immersive learning began. It was not until 2018, in the heart of the crypto winter, that the digital securities market picked up. The SEC’s informal guidance consistently pointed digital asset issuers towards the JOBS Act exemptions, so working with these clients was a natural fit.
3. How many DSOs have you worked on to date?
Together with my partner in Digital Securities Law Group, Simon Riveles, we’ve handled around ten digital securities offerings. The client types range from domestic and offshore private company issuers who are looking to tokenize capital stock, to domestic and offshore private funds in the crypto, venture, and real estate industries.
4. From a legal perspective, how does a digital securities offering (DSO) differ from a traditional securities offering?
As you well know, every offering of securities must either be registered with the SEC or comply with an available exemption from registration. Digital securities offerings are no different. We’ve worked with Regulation A+, Regulation D, Regulation S and Regulation CF in the context of our client’s DSOs. The distinguishing factors are more-so in how the security is structured. Fractionalized ownership with the potential ability for re-sale, while offering a tremendous amount of benefits, also raises issues connected to corporate governance, cap table management, voting rights, liquidation and holder of record limitations under 12(g) of the Exchange Act, among others. We work closely with our clients through these issues to help them assess the risks and make educated decisions when preparing for their DSO.
5. What is the most common misconception issuers have when they contact you about doing a DSO?
I’ve been really thrilled to have spoken with such a geographically diverse and industry-agnostic array of prospective DSO issuers. For the most part, prospective clients are well informed about the securities laws they will be needing to comply with when raising capital inside the United States. What many capital raising companies undervalue, however, is that capital raising with a new form of digital asset requires a great deal of marketing, and education, of their prospective investor base. It’s never too soon to start marketing your business and building relationships. This misconception isn’t unique to DSOs. It’s prevalent in the crowdfunding market too.
6. One of the frequently touted advantages of digital securities is that they will eliminate some middlemen, including lawyers. What will be the role of the lawyer in digital securities offerings and secondary trading in the future if this is true?
Our firm values innovation and technology. We’ve carefully selected and implemented technology and systems to enhance internal productivity, which in turn leads to reduced legal costs for our clients. Even as utilization of smart contracts increases, lawyers won’t be out of a job. Code is not law. We will continue to serve as lawmakers, trusted advisors, risk mitigators and strategists for our clients. In the DSO context, even as smart contracts are implemented to address compliance in primary issuance and secondary trading, specialized counsel will continue to have an integral role in helping clients sculpt and execute on compliant strategies on the front end of a transaction.
7. In your opinion, what needs to happen in order for the digital securities industry to evolve further?
In order for the digital securities landscape to evolve, we will need to see increased adoption by both retail and institutional participants. For increased retail participation – in my opinion, the catalyst is education. For mass adoption, there simply has to be more money fueling the space, which means that our institutions have to be comfortable that they can compliantly participate. Institutional adoption has been stifled at least in part by the somewhat ambiguous guidance we’re receiving from our regulators. The biggest unresolved issue being that of custody. The only lesson we’ve learned with respect to custody is that broker-dealers who don’t take custody aren’t faced with the custody rules. Of course, that simplistic conclusion isn’t satisfactory to the digital asset securities community, the broker-dealer industry or the American public. Until the gatekeepers to the securities industry have the means to comply with the custody rules, the creation and exchange of digital asset securities will remain in this infancy state that we are in today.
8. Lastly, what excites you most about what you see in the digital securities industry today?
What excites me most about the digital securities industry is, in the overview, the paradigm shift that is coming in the way securities are regulated inside the United States.
In my personal opinion, I believe that with the emergence of blockchain technology, and the digital securities within its magnificent framework, we are experiencing compelling a shift away from the centralized, gatekeeper approach that dominates our securities laws, towards a disinter-mediated approach that’s suitable for the decentralized technological revolution. This is essentially the root of the struggle that our regulators are facing today. Thankfully, our regulators have been overwhelmingly collaborative with blockchain innovators, and it will have to be with the support of lawyers, technologists, and entrepreneurs that a new-age framework can be developed. I’m excited to be here, now.
This Industry Spotlight was featured in V.3 Issue 06 of The Protocol Newsletter, an inside examination of the accomplishments within the digital securities industry. The Protocol Newsletter features issuers, issuance platforms, marketplaces, broker-dealers, custodians, marketers, and more, with a specific interest in their real-life stories about what it takes to issue and manage digital securities on public and permission-based blockchains. Our goal is to provide the digital securities industry with invaluable insights and to serve as a resource for those looking to issue digital securities in the future.
About Sosnow & Associates:
Headquartered in New York City, Sosnow & Associates PLLC represents early-stage businesses, online investment platforms, funding portals and broker-dealers engaged in capital raising activities. Our firm focuses on corporate and securities law matters, from the seed stage financings to exits. We bring extensive experience and professionalism to every client and customize our support to your individual needs and concerns.
To learn more please visit https://jobsactlawyers.com/
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