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  • 🤓 Study Up: The “Accredited Investor” Test is Coming

🤓 Study Up: The “Accredited Investor” Test is Coming

👨‍⚖️ Crypto vs. Security: A New Bill from the Hill

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Gooood morning, Rainmakers! ☀️

As always, we have two captivating topics for you to dive into:

1️⃣ 🤓 Study Up: The “Accredited Investor” Test is Coming

2️⃣ 👨‍⚖️ Crypto vs. Security: A New Bill from the Hill

Without further ado, it's time to…

Get Liquid 💧


Provenance Blockchain is a public-permissioned blockchain developed specifically with financial services in mind. The layer 1 blockchain touts over $12 billion in transactions across lending, investment funds, banking & payments, and other services per Provenance Blockchain Foundation. The direct ecosystem includes over 50 major financial institutions and almost 10,000 open wallets, with 700+ of those being institutional and qualified investors

Want to learn more? Sign up for their spotlight webinar on the STA Success Network!

Can’t wait? Check out their latest updates on the all new State of Security Tokens 2023 - Q1 Extended report on page 33! From Hamilton Lane to NovaWulf to USDF, there’s plenty that they’re doing from multiple angles.

🤓 Study Up: The “Accredited Investor” Test is Coming

Investor access to private offerings has always been an issue, even with tokenization. Why? Because the SEC exemption used determines what kind of investor gets to participate.

The easiest to file also allows the issuer to market the offering freely and raise as much as they’d like… very attractive! But there’s a catch: Only accredited investors get to invest.

What’s an accredited investor?

Financial Criteria

- Net worth over $1 million, excluding primary residence (individually or with spouse or partner)

- Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year

Professional Criteria

- Investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)

- Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company)

- Any “family client” of a “family office” that qualifies as an accredited investor

- For investments in a private fund, “knowledgeable employees” of the fund

Most accredited investors are eligible due to the financial criteria and those that qualify via professional criteria essentially require the person to be involved in the financial services industry.

As you can see this is very limiting…. until now!

Introducing Congressman Flood’s first bill, the Equal Opportunity for All Investors Act of 2023, which passed the House of Representatives this past Wednesday, May 31st!

Congressman Flood’s first bill, the Equal Opportunity for All Investors Act of 2023

The Congressman from Nebraska is fighting for more investors to have access to new opportunities based on proof of knowledge rather than proof of wealth. See what I did there? 😉 

This will be evaluated by an SEC-written exam, administered by FINRA and will be free of charge! Of course, this won’t be an easy test as it needs to have guardrails to filter out those that don’t fully understand private offerings and their risks.

With this, issuers will have access to a wider investor pool and investors will have many more investment opportunities.

Does this affect tokenization? Absolutely! At the end of the day, security tokens represent underlying securities. With more accredited investors able to participate in Regulation D offerings, theoretically there has to be an expectation for higher distribution and trading volume.

When will this be available? That’s unclear as of now but one step at a time… getting bipartisan support on this bill is huge! 👏🏼

👨‍⚖️ Crypto vs. Security: A New Bill from the Hill

Legislation’s progress doesn’t stop at the investor level, now let’s explore the asset level!

Majority Whip Tom Emmer (R-MN) and Representative Darren Soto (D-FL) announced the introduction of their bipartisan Securities Clarity Act. The bill will provide clarity to the regulatory classification of digital assets, providing market certainty for innovators and clear jurisdictional boundaries for regulators.

Without a distinction between the asset and the securities contract, token projects that must raise capital to fund development in the early stages will not be able to move out of the securities framework once the project is decentralized, preventing these tokens from being used for their utility, which will only harm token holders.

The Securities Clarity Act offers a key distinction that will enable crypto projects to reach their full potential in a compliant way, enabling the United States to compete globally in this next iteration of the internet. This legislation is crucial to ensuring that domestic innovation thrives, and that the United States remains globally competitive

Majority Whip Tom Emmer

Essentially the bill is saying that just because a crypto/token is part of an investment contract doesn’t automatically make the crypto itself a security. This creates a path for these digital assets to not need to “transform” from security to non-security… it just wouldn’t be a security to begin with.

How is an asset currently determined to be a security?

The Howey Test:

  1. An investment of money

  2. In a common enterprise

  3. With the expectation of profit

  4. To be derived from the efforts of others

The bill is separating the investment transaction from the rest of the asset.

For example, say a project needed some capital to get it off the ground. Let’s call it $EXAMPLE. They could raise that capital from investors using a registration or an exemption like Regulation CF, Regulation D, or Regulation A+.

After deploying $EXAMPLE say it reaches enough decentralization… well new $EXAMPLE buyers won’t be able to expect profit from the effort of others… who would be accountable for that effort if it’s fully decentralized?

In this example, the crypto $EXAMPLE would not be a security. Only the investment contract between the first investors and the initial “founders” would be the security. Considering that most crypto transactions happen on secondary markets, this bill should provide some clarity to exchanges on what they can and can’t list.

What’s still up in the air though is: How do you measure decentralization?

Thoughts on this bill? Let me know on Twitter!

💦 What else is Drippin’

The wait is over: The Security Token Advisors State of Security Tokens 2023 - Q1 Extended report is brought to you by Provenance Blockchain Foundation!

Our Head of Research and Institutional, Peter Gaffney, dives deep with updates from across the industry, from issuers to platforms to protocols. This piece will detail the macro trends taking shape within the tokenization space as a function of service providers like transfer agents, broker-dealers, alternative trading systems, custodians, and third-parties, as well as issuers, blockchain foundations, asset managers, investment banks, and activity that Security Token Advisors sees on its advisory side

Take a read for analysis on common themes emerging for both primary and secondary markets! 👇

This is not financial or investment advice.

Everything in this report is for informational and entertainment purposes only. Nothing in this report should be taken as financial advice or as an inducement to purchase or sell any security. Nothing in this market report should be used as legal advice. Always do your own research before making any decisions regarding financial transactions of securities.