1 00:00:00.450 --> 00:00:02.880 Allyson Berger: So let's transition now into talking 2 00:00:02.880 --> 00:00:06.300 about something somewhat similar, not entirely but 3 00:00:06.510 --> 00:00:08.010 fintech securities. 4 00:00:08.010 --> 00:00:12.050 Sean Murray: Sure, yeah. So securities law has been 5 00:00:12.140 --> 00:00:17.360 essentially a taboo topic in the fintech industry for quite a 6 00:00:17.360 --> 00:00:23.600 while. And that's partially because if you've decided that 7 00:00:23.600 --> 00:00:25.880 your whatever product that you're offering is not a 8 00:00:25.880 --> 00:00:29.420 security, you probably don't want to talk about it too much. 9 00:00:29.480 --> 00:00:31.970 Because you don't want anyone to be interested in why you think 10 00:00:31.970 --> 00:00:35.150 that. Okay, I get that. And so it's super hush hush. It's 11 00:00:35.150 --> 00:00:38.540 something that if you even had the conversation, it's one you 12 00:00:38.540 --> 00:00:42.020 had with your lawyer behind closed doors, and you never 13 00:00:42.020 --> 00:00:44.540 mentioned it to anyone else. You just said, hey, we talked to 14 00:00:44.540 --> 00:00:47.840 somebody, we're, you know, we're compliant. We're good. Yeah. You 15 00:00:47.840 --> 00:00:50.750 know don't, this is like a don't, you know, don't don't 16 00:00:50.750 --> 00:00:55.490 mention it. Conversation. Yeah. And I think the downside of that 17 00:00:55.610 --> 00:00:58.430 is that so many new entrants when they came into the 18 00:00:58.430 --> 00:01:02.690 industry, they didn't realize that some of the earlier folks 19 00:01:02.900 --> 00:01:08.210 had already kind of checked that off. And they assumed that well, 20 00:01:08.360 --> 00:01:11.690 we know what we're offering must not be a security, or that it 21 00:01:11.690 --> 00:01:14.300 wasn't even something you had to think about. And I've 22 00:01:14.300 --> 00:01:17.450 encountered that a lot with people asking me about, you 23 00:01:17.450 --> 00:01:21.380 know, the term syndication, and participations, and co funding 24 00:01:21.380 --> 00:01:23.870 and all these terms that people have used to talk about co 25 00:01:23.870 --> 00:01:29.900 investing in deals. And you know that I would ask like, well, did 26 00:01:29.900 --> 00:01:32.660 you have a securities lawyer, look at what you're doing? And 27 00:01:32.660 --> 00:01:35.900 they're like, a securities lawyer, I'm not selling stocks. 28 00:01:35.930 --> 00:01:38.060 You know what I mean, I'm not selling bonds. I'm just finding 29 00:01:38.060 --> 00:01:42.230 investors. And like, as soon as you say, investors, that's a you 30 00:01:42.230 --> 00:01:45.410 know big signal that you should be talking to a securities 31 00:01:45.410 --> 00:01:48.380 lawyer because it could be a security. Right. And I'm not the 32 00:01:48.380 --> 00:01:51.950 be all end all on that topic, because I'm not a lawyer, and 33 00:01:51.950 --> 00:01:57.110 I'm not a securities lawyer. But there was somebody who, about 34 00:01:57.110 --> 00:02:00.950 four years ago started to make it a public issue, and a way to 35 00:02:00.950 --> 00:02:05.030 try to help those who are operating, because I think he 36 00:02:05.030 --> 00:02:13.520 saw how, you know how, under, not under knowledge, is that a 37 00:02:13.520 --> 00:02:15.170 word? Under knowledge? Sure we can make it one today. Under an 38 00:02:15.170 --> 00:02:17.810 under knowledge, I don't say uneducated but under knowledge, 39 00:02:17.930 --> 00:02:18.470 you know what I mean? 40 00:02:18.470 --> 00:02:20.390 Allyson Berger: There wasn't enough information out there 41 00:02:20.390 --> 00:02:20.750 about it. 42 00:02:20.750 --> 00:02:23.420 Sean Murray: Exactly. They were educated folks who didn't have 43 00:02:23.420 --> 00:02:28.220 access to the, to the inflammation. And he kind of 44 00:02:28.220 --> 00:02:33.170 made it his mission to be a voice of, of this issue. And his 45 00:02:33.170 --> 00:02:37.700 name was Greg Novak, who was a partner at Troutman Pepper, 46 00:02:37.730 --> 00:02:40.790 originally, Pepper Hamilton. And it's timely that we talk about 47 00:02:40.790 --> 00:02:43.670 it, because he unfortunately just recently passed away. It's 48 00:02:43.670 --> 00:02:48.230 very, it's very, very sad. And we put something up on our on 49 00:02:48.230 --> 00:02:52.610 our website about it. Yeah. And I was only professionally 50 00:02:52.640 --> 00:02:58.520 acquainted with him. But I took to what he was saying very early 51 00:02:58.520 --> 00:03:02.750 on, because so few people were talking about securities law as 52 00:03:02.750 --> 00:03:07.850 it related to the small business finance industry. And I actually 53 00:03:07.850 --> 00:03:11.300 I met him at a presentation that he gave, and I'm like, no, this 54 00:03:11.300 --> 00:03:14.000 guy's smart. And I hope as many people hear what he's saying. 55 00:03:15.230 --> 00:03:18.290 Allyson Berger: I'm sure he had an impact on many people live's, 56 00:03:18.440 --> 00:03:19.040 yourself and. 57 00:03:19.040 --> 00:03:21.732 Sean Murray: Oh, for sure. Oh, yeah. So he impacted a lot of 58 00:03:21.791 --> 00:03:25.447 people. And people would would hear him speak at shows, I know 59 00:03:25.450 --> 00:03:25.506 Allyson Berger: Cause everyone knows one of those. 60 00:03:25.506 --> 00:03:29.222 a lot of people retain them to be their attorney, or, you know, 61 00:03:29.281 --> 00:03:32.879 their expert on on the matter. And, you know, if there's any, 62 00:03:32.938 --> 00:03:36.594 if this is ever a time to kind of talk about this issue again, 63 00:03:36.653 --> 00:03:40.428 it's now. And that's because so many people are still new to the 64 00:03:40.487 --> 00:03:44.085 business, or have been in it for a short time, and may not be 65 00:03:44.144 --> 00:03:47.801 aware that what they're doing could have a securities twist to 66 00:03:47.860 --> 00:03:51.634 it. Because if you're starting a company, you might say, well, I 67 00:03:51.693 --> 00:03:55.173 don't have enough money myself. So I'm going to borrow some 68 00:03:51.970 --> 00:03:55.232 Sean Murray: It's you know, it's a thing um, it just gotta find 69 00:03:55.232 --> 00:03:58.830 money, some from friends and family. And after I do that, you 70 00:03:58.889 --> 00:04:02.487 know, I might ask a few rich people that I know, if they want 71 00:04:02.546 --> 00:04:06.379 to invest. And you're like, it's just between me and my investor. 72 00:04:06.438 --> 00:04:09.623 Right. Right? But you could inadvertently have already 73 00:04:09.682 --> 00:04:13.457 credited a security, you've now created some type of investment. 74 00:04:13.516 --> 00:04:17.291 And there are all types of rules that you now need to follow and 75 00:04:17.349 --> 00:04:20.829 you aren't even thinking about it. You're like no I went to 76 00:04:20.888 --> 00:04:23.130 this rich person. Yeah. I ask them to. 77 00:04:29.950 --> 00:04:30.730 the rich person. 78 00:04:30.790 --> 00:04:32.980 Allyson Berger: But no one hands you, you know, a rulebook on how 79 00:04:32.980 --> 00:04:36.340 to handle all this, once you get the investments and you go into 80 00:04:36.340 --> 00:04:38.980 the next steps of, you know, creating your business or 81 00:04:38.980 --> 00:04:40.630 whatever you've got those investments for. 82 00:04:40.630 --> 00:04:42.822 Sean Murray: Yeah. And if you're, you know, and if you're 83 00:04:42.822 --> 00:04:42.872 Allyson Berger: Yeah, their just not something to mess around 84 00:04:42.872 --> 00:04:46.125 an entrepreneur who bootstrapped yourself in the beginning, where 85 00:04:46.175 --> 00:04:49.078 you started with some friends and family money, or you owe 86 00:04:49.129 --> 00:04:51.831 money. Obviously, you didn't have a, a general counsel 87 00:04:51.881 --> 00:04:54.885 compliance officer to tell you, right? And you're like, it's 88 00:04:54.935 --> 00:04:57.888 just between me and this one person who invested and we and 89 00:04:57.938 --> 00:05:01.041 we have a contract. I hear that a lot. But we have a contract. 90 00:05:01.091 --> 00:05:04.094 I'm like, okay, but it could still be subject to securities, 91 00:05:04.145 --> 00:05:07.398 you know regulations. And so you should just check again, I'm not 92 00:05:07.448 --> 00:05:10.351 the authority on whether it is or not what you should just 93 00:05:10.401 --> 00:05:13.354 check. Right. And talk to an expert. Yeah. And that applies 94 00:05:13.404 --> 00:05:16.458 to anybody out there who was involved in co funding of deals, 95 00:05:16.508 --> 00:05:19.411 syndication, participation, I know you don't want to think 96 00:05:19.461 --> 00:05:22.314 about it. I know it sounds expensive, but everyone who is 97 00:05:22.364 --> 00:05:25.417 involved in that aspect of the business should have some type 98 00:05:25.467 --> 00:05:28.120 of professional legal securities advice to guide them 99 00:05:28.170 --> 00:05:30.973 accordingly, whether you're the investor, or the company 100 00:05:31.023 --> 00:05:34.176 offering the investment. And you may be saying, you know, what, 101 00:05:34.226 --> 00:05:36.879 I'm not even offering an investment. My contract says 102 00:05:36.929 --> 00:05:40.133 this. So I'm exempt. Well, if a securities lawyer told you that, 103 00:05:40.183 --> 00:05:43.136 maybe you're probably okay. But if you just. I just did it. 104 00:05:43.186 --> 00:05:46.039 Yeah, if you just wrote, you know, if you arrived at that 105 00:05:46.089 --> 00:05:49.192 conclusion on your own, that's where you get into trouble when 106 00:05:49.242 --> 00:05:52.396 you start thinking that you're you tricked the SEC. Like you're 107 00:05:52.446 --> 00:05:55.449 in the clear. Yeah, I tricked them. Not so much. You know, I 108 00:05:55.499 --> 00:05:58.552 didn't I didn't use that word. So I'm tricking them. And when 109 00:05:58.602 --> 00:06:01.806 they ask, I'll say, it's not an investment. It's, you know, it's 110 00:06:01.856 --> 00:06:05.310 this or whatever. And, you know, securities regulators aren't stupid. 111 00:06:07.000 --> 00:06:07.390 Sean Murray: Yeah, you don't want to mess around with you 112 00:06:07.390 --> 00:06:07.660 with. 113 00:06:08.560 --> 00:06:13.420 don't want to mess around with it. As Greg said, the rules are 114 00:06:13.420 --> 00:06:16.840 unforgiving. And you have to follow them. And so he actually 115 00:06:16.840 --> 00:06:20.080 was an advocate for even if you're not 100%, sure, you 116 00:06:20.080 --> 00:06:23.350 should just try to follow them anyway. Rather than take the 117 00:06:23.350 --> 00:06:26.830 risk of being wrong. And so anyone out there who's involved 118 00:06:26.860 --> 00:06:30.550 in any type of investment, co funding, syndication, 119 00:06:30.550 --> 00:06:34.000 participation, I don't care what your contract says, just make 120 00:06:34.000 --> 00:06:36.520 sure you have somebody knowledgeable in securities law. 121 00:06:36.730 --> 00:06:40.030 I don't mean like your, your lawyer, who does you know an 122 00:06:40.030 --> 00:06:42.220 occasional real estate transaction sometime or your 123 00:06:42.220 --> 00:06:45.340 lawyer who, you know does your taxes. It should be someone 124 00:06:45.340 --> 00:06:47.440 who's knowledgeable with securities law, it's actually a 125 00:06:47.440 --> 00:06:50.530 very specific area of law. I was about to say very specific. 126 00:06:50.530 --> 00:06:52.840 Yeah. Cause I, you know, oftentimes, you say, I had a 127 00:06:52.840 --> 00:06:56.350 friend who's a lawyer look at it. And I don't often I don't 128 00:06:56.350 --> 00:06:59.260 even know if that's enough. Not the right lawyer. Yeah, you need 129 00:06:59.260 --> 00:07:02.350 to have it. And securities lawyers can be expensive. But 130 00:07:02.350 --> 00:07:05.020 the advice you get, I mean, it'll be worth it to get the 131 00:07:05.020 --> 00:07:07.240 proper advice and to conduct yourself accordingly from the 132 00:07:07.240 --> 00:07:11.200 beginning, rather than find out after the fact. And then, you 133 00:07:11.200 --> 00:07:14.380 know, that will be way more expensive. Yeah. Yeah. It'll 134 00:07:14.380 --> 00:07:16.690 come, it'll come to bite yah. It will definitely come to bite 135 00:07:16.690 --> 00:07:19.030 you. I mean, it happened to companies like Lending Club and 136 00:07:19.030 --> 00:07:21.640 Prosper. You might compare yourself to them their like, 137 00:07:21.640 --> 00:07:25.330 well, how did they get an investment or whatever, from 138 00:07:25.330 --> 00:07:28.450 individuals? Well, they actually have to register every single 139 00:07:28.450 --> 00:07:30.580 loan on their platform with the Securities and Exchange 140 00:07:30.580 --> 00:07:33.550 Commission. And guess what, they didn't do that in the beginning. 141 00:07:33.610 --> 00:07:36.100 And the SEC was like, I'm very interested in what you do. 142 00:07:36.160 --> 00:07:39.250 Right. And they're like, ah, you know, so it, and. You never know 143 00:07:39.250 --> 00:07:41.440 when they're gonna go checking. You never, yeah you never know 144 00:07:41.470 --> 00:07:43.930 when they're gonna go checking in if you even if you're small. 145 00:07:43.930 --> 00:07:47.080 You might say, well, I'm small. I just have 10 investors, right? 146 00:07:47.230 --> 00:07:48.790 It's just me and 10 rich people. 147 00:07:49.660 --> 00:07:50.980 Allyson Berger: Wow, you're adding more to them? 148 00:07:51.010 --> 00:07:53.080 Sean Murray: Yeah. Now, there's 10 of them. Well, yeah. 149 00:07:53.110 --> 00:07:54.880 Allyson Berger: Wow, I just want to find one. 150 00:07:56.650 --> 00:07:58.270 Sean Murray: That they're out there somewhere. Yeah, they're 151 00:07:58.270 --> 00:07:58.620 Allyson Berger: I think you're making a great point. It doesn't 152 00:07:58.620 --> 00:07:58.870 not in here. 153 00:08:01.990 --> 00:08:05.230 matter how big or small you just want to do the right thing. And, 154 00:08:06.070 --> 00:08:09.760 you know, Greg's legacy lives on in many ways. And this was a 155 00:08:09.760 --> 00:08:11.410 great thing that you got. 156 00:08:11.590 --> 00:08:14.350 Sean Murray: Yeah, yeah, for sure. And you might say, well, 157 00:08:14.350 --> 00:08:17.710 I'm small, and the SEC won't know the the problem is that if 158 00:08:17.740 --> 00:08:20.740 one of your investors, let's say you're a small, let's say you're 159 00:08:20.740 --> 00:08:24.460 small, I mean, a perfect example. 160 00:08:25.890 --> 00:08:28.020 Allyson Berger: You haven't met me in real life, yet. I'm small. 161 00:08:29.370 --> 00:08:31.651 Sean Murray: You know, let's say you're small. And you're like, 162 00:08:31.696 --> 00:08:34.433 I'm flying under the radar. I can't afford all the bells and 163 00:08:34.479 --> 00:08:37.353 whistles me and my investors are good. I'm trying to look for a 164 00:08:37.399 --> 00:08:40.091 rich person. Yeah. And I know them personally. Everything's 165 00:08:40.136 --> 00:08:42.509 fine. It's great. Yeah, it's me and my rich friends. 166 00:08:42.509 --> 00:08:44.219 Allyson Berger: Yup, hang out with them all the time. 167 00:08:44.219 --> 00:08:46.604 Sean Murray: Hang out. And something happens like a 168 00:08:46.667 --> 00:08:51.000 pandemic. And those investments don't work out and you're like, well. 169 00:08:51.019 --> 00:08:52.679 Allyson Berger: I need to find new rich friends. 170 00:08:52.679 --> 00:08:55.075 Sean Murray: Yeah, well, you might be thinking, Oh, I just 171 00:08:55.128 --> 00:08:58.377 got to find new rich friends, but one of your rich friends is 172 00:08:58.431 --> 00:09:01.733 going to be very upset. At least one is gonna be very upset if 173 00:09:01.786 --> 00:09:05.035 they lost money. Right. And you run the risk that if and when 174 00:09:05.088 --> 00:09:08.337 they pursue you legally, that now a third party, like a court 175 00:09:08.390 --> 00:09:11.799 is going to start looking at it and be like, oh, it really looks 176 00:09:11.852 --> 00:09:15.101 like you know, this should have been registered as a security 177 00:09:15.154 --> 00:09:18.509 and then you're like, so you're off the radar until you weren't 178 00:09:18.563 --> 00:09:22.025 and so it doesn't matter how big or small you are. It's something 179 00:09:22.078 --> 00:09:24.049 that you should definitely look into.