Financial Advisor or Facilitator - Collective Investment Scheme

[cryptodefi]

Ever since I became a part of this incredible forum, the depth and breadth of knowledge, unwavering support, and unique insights.

Interestingly, while this forum covers a vast array of topics, I've noticed an absence of discussions centered on Collective Investment Schemes.
I'd like to introduce and seek guidance on this very topic.

A bit about my background in this: I spearhead a dedicated WhatsApp group comprising "professional investors" over $1M in portfolio.
Our primary focus lies in Equity within Startups and Crypto

A few key points to contextualize our group:
1)None of the members hail from the U.S.
2) I, myself, am from a small island in the Caribbean. The rest of our group's members span continents, predominantly from Asia and Europe.
3)Our agreements and deals are structured such that contracts are individually signed.
4) I'm the one that goes after the deals to bring to the group and I receive a commission on top of their investment
5) They are not interested in setting up a fund. They like to invest themselves in startups or crypto.

To be in compliance with the rules, since the business is growing, I'm seeking a Jurisdiction to incorporate the company and a License such as Financial Advisory and/or Facilitating Investments.

Questions
1)Do I require a Financial Advisor License, or should I consider an Investment Facilitator License? Which is more appropriate for my needs?
2)Which jurisdictions offer a more streamlined process for obtaining such licenses?
3)Should I consider restrictions for multiple countries or focus solely on the U.S.?
4) In the realm of cryptocurrency, is it okay to establish a shell company to sign the contracts and use a new wallet to receive tokens?
5) What are good firms overseas in the crypto sector?

 

[Sols]

To be in compliance with the rules, since the business is growing, I'm seeking a Jurisdiction to incorporate the company and a License such as Financial Advisory and/or Facilitating Investments.

Questions
1)Do I require a Financial Advisor License, or should I consider an Investment Facilitator License? Which is more appropriate for my needs?

Depends on who you ask. If all you do is make introductions to potential investment opportunities, you might not need a license at all. But if you present the investment opportunities and give statements about the risk and opportunity, you are probably going into regulated territory. it's probably enough with a facilitator license or equivalent. You don't sound like a fully fledged advisor.

If you ask your local regulator where you live, registration there is probably enough. However, if you ask the financial service regulator where you are based, they would say you are not authorized to give investment advice there.

2)Which jurisdictions offer a more streamlined process for obtaining such licenses?

Best would be where you live, since you then at least have the defense that you're regulated where you are based. If you go get a license somewhere else, what do you say if someone asks where the investment facilitation services are provided from?

3) Should I consider restrictions for multiple countries or focus solely on the U.S.?

Too broad to answer in a meaningful way. Assess each intended target country individually. Some have aggressive rules but little to no way of enforcing. Some might tolerate you based on where you're from (i.e. if you are from a reputable jurisdiction with decent consumer protection rights).

Also depends on your risk appetite. I understand you don't want to run afoul of US regulators. But what about UK? Australia? India? Japan? Whose authority do you consider?

4) In the realm of cryptocurrency, is it okay to establish a shell company to sign the contracts and use a new wallet to receive tokens?

That by itself isn't a problem and is rather common. It's what else goes on throughout the transaction which determines if it's legal/compliant.

5) What are good firms overseas in the crypto sector?

I don't understand this question.

 

[cryptodefi]

Depends on who you ask. If all you do is make introductions to potential investment opportunities, you might not need a license at all. But if you present the investment opportunities and give statements about the risk and opportunity, you are probably going into regulated territory. it's probably enough with a facilitator license or equivalent. You don't sound like a fully fledged advisor.

I do a lot. The whole communication with the project, negotiating terms, gauging the investors' interest, and also doing a review about the tech, but I'm not their decision-making.

If you ask your local regulator where you live, registration there is probably enough. However, if you ask the financial service regulator where you are based, they would say you are not authorized to give investment advice there.

Best would be where you live, since you then at least have the defense that you're regulated where you are based. If you go get a license somewhere else, what do you say if someone asks where the investment facilitation services are provided from?

Where do I live or where the company is based? Because I have the flexibility to incorporate whatever it's easier for the licenses.

Too broad to answer in a meaningful way. Assess each intended target country individually. Some have aggressive rules but little to no way of enforcing. Some might tolerate you based on where you're from (i.e. if you are from a reputable jurisdiction with decent consumer protection rights).

Also depends on your risk appetite. I understand you don't want to run afoul of US regulators. But what about UK? Australia? India? Japan? Whose authority do you consider?

I literally have investors from everywhere! Since we met via the internet.
"Accredited Investor Self-Certification" or "Accredited Investor Representation Letter." could mitigate the risks?

That by itself isn't a problem and is rather common. It's what else goes on throughout the transaction which determines if it's legal/compliant.

I researched and I would be considered custodian under VASP company lol

I don't understand this question.

Oh I asked about good law firms overseas that focus on crypto and startup

 

[Sols]

Where do I live or where the company is based? Because I have the flexibility to incorporate whatever it's easier for the licenses.

It depends on how worried you are about upsetting regulators.

You should be concerned where you live, if you reasonably suspect that your local financial service regulator might get curious what you're doing sitting at home within their jurisdiction offering a financial service without being licensed there.

Same goes for markets you target. For example, a Cayman Islands licensee isn't permitted to market in UK. If you do so aggressively and get caught, the FCA will issue a warning saying "Cryptodefi Caymans Ltd is an unauthorized service provider."

I literally have investors from everywhere! Since we met via the internet.
"Accredited Investor Self-Certification" or "Accredited Investor Representation Letter." could mitigate the risks?

There are nuances to this. In the wrong circumstance, a license like that can be about as helpful as wearing a sweater instead of wearing a t-shirt when being shot in the stomach with a shotgun. Sure, it's a little better, but does it make a difference?

However, if it's a somewhat reputable license and you're not involved in anything large scale, it might be fine.

That's what I meant by it being too broad to answer in any meaningful way. Assess the risks associated with the markets you target (before or after going into them). If you are willing to accept the risk associated with taking on the whole world, then go for it.

Oh I asked about good law firms overseas that focus on crypto and startup

OK, but where? Overseas is a big place! A Singapore law firm isn't going to be very helpful for the laws of Morocco.

 

[cryptodefi]

It depends on how worried you are about upsetting regulators.

You should be concerned where you live, if you reasonably suspect that your local financial service regulator might get curious what you're doing sitting at home within their jurisdiction offering a financial service without being licensed there.

Should I be worried about the countries of the investors? There are more than 30 countries

Same goes for markets you target. For example, a Cayman Islands licensee isn't permitted to market in UK. If you do so aggressively and get caught, the FCA will issue a warning saying "Cryptodefi Caymans Ltd is an unauthorized service provider."

We do not market though, that's a select group. Only by invitation.

There are nuances to this. In the wrong circumstance, a license like that can be about as helpful as wearing a sweater instead of wearing a t-shirt when being shot in the stomach with a shotgun. Sure, it's a little better, but does it make a difference?

However, if it's a somewhat reputable license and you're not involved in anything large scale, it might be fine.

Wow. So a license might be not useful?
What do you mean by large scale?

And I mentioned the self-declaration of accredited investors. Meaning that the investors need to self-declare as accredited.
In other words, knowing the risks, and accepting the terms.

That's what I meant by it being too broad to answer in any meaningful way. Assess the risks associated with the markets you target (before or after going into them). If you are willing to accept the risk associated with taking on the whole world, then go for it.


OK, but where? Overseas is a big place! A Singapore law firm isn't going to be very helpful for the laws of Morocco.

Caribbean I guess

 

[JohnnyDoe]

Why not setting up a completely anonymous/pseudonymous DAO?

 

[cryptodefi]

Why not setting up a completely anonymous/pseudonymous DAO?

Because we need to sign the contracts (generally SAFT)

 

[wellington]

Why not setting up a completely anonymous/pseudonymous DAO?

CFTC/FBI and SEC track IP's associated to transactions....

They also have access to Hardware and Software Wallet Data (wallet addresses associated to X wallet, Wallet interacted with chain from X Device etc (device meta) + IP etc.

So there's no such thing as anon

Ledger Live = Meta Accessible
Web Wallet(s) = Meta Accessible
Trezor = Meta Accessible

etc...

 

[Sols]

Should I be worried about the countries of the investors? There are more than 30 countries

I can't tell you how to feel. What I can tell you is that the jurisdictions that may have power over your situations are where you live, where you incorporate, and where you make your services available. Doesn't mean that you're going to jail forever with the key thrown away and your asset seized.

We do not market though, that's a select group. Only by invitation.

Depending on who's doing the inviting, invitations may be a form of marketing. But not doing traditional marketing reduces the risks greatly.

Wow. So a license might be not useful?

There are cases where a bad or weak license is practically as bad as having no license. For example, Vanuatu issues licenses for a range of financial services to anyone who hands in an application form and pays the application fees.

On the other hand, Cayman Islands has an equally impressive breadth to their menu of financial services. A license from there carries a lot more weight.

What do you mean by large scale?

Big enough to draw attention from regulators. This can mean number of customers, amount of money flowing around, number of transactions, et cetera. If you go about this in a non-compliant way, you are limiting your ability to grow. Of course, you can grow to a certain size and then get a license from someplace more reputable.

And I mentioned the self-declaration of accredited investors. Meaning that the investors need to self-declare as accredited.
In other words, knowing the risks, and accepting the terms.

That's better than nothing, but it also doesn't mean a whole lot if push comes to shove. Which it probably won't.

It's all a risk-reward calculation.

 

[wellington]

Should I be worried about the countries of the investors? There are more than 30 countries

We do not market though, that's a select group. Only by invitation.

Wow. So a license might be not useful?
What do you mean by large scale?

And I mentioned the self-declaration of accredited investors. Meaning that the investors need to self-declare as accredited.
In other words, knowing the risks, and accepting the terms.

Caribbean I guess

Singapore ISN'T the place to do anything crypto related for the time being...

That huge money laundering thing has set the regulators on fire.

*From Exp*

If you want to do something 'legal', would suggest Labuan 3% tax (onshore activities) - will need substance.

Personal tax can be 0% dependent and visa's etc provided. about 10-15k set up costs.

 

[DarkRevoMan]

Ever since I became a part of this incredible forum, the depth and breadth of knowledge, unwavering support, and unique insights.

Interestingly, while this forum covers a vast array of topics, I've noticed an absence of discussions centered on Collective Investment Schemes.
I'd like to introduce and seek guidance on this very topic.

A bit about my background in this: I spearhead a dedicated WhatsApp group comprising "professional investors" over $1M in portfolio.
Our primary focus lies in Equity within Startups and Crypto

A few key points to contextualize our group:
1)None of the members hail from the U.S.
2) I, myself, am from a small island in the Caribbean. The rest of our group's members span continents, predominantly from Asia and Europe.
3)Our agreements and deals are structured such that contracts are individually signed.
4) I'm the one that goes after the deals to bring to the group and I receive a commission on top of their investment
5) They are not interested in setting up a fund. They like to invest themselves in startups or crypto.

To be in compliance with the rules, since the business is growing, I'm seeking a Jurisdiction to incorporate the company and a License such as Financial Advisory and/or Facilitating Investments.

Questions
1)Do I require a Financial Advisor License, or should I consider an Investment Facilitator License? Which is more appropriate for my needs?
2)Which jurisdictions offer a more streamlined process for obtaining such licenses?
3)Should I consider restrictions for multiple countries or focus solely on the U.S.?
4) In the realm of cryptocurrency, is it okay to establish a shell company to sign the contracts and use a new wallet to receive tokens?
5) What are good firms overseas in the crypto sector?

The non-compliance route doesn't sound too bad.

To me the easiest option seems to be USA. Either a Delaware statutory trust (only needs private agreement between investors), or a USA corp with one of the SEC listed exemptions (safeharbor, crowdfund, regD, etc.).

Keep in mind, the people you know (ie have a pre-exsisting relationship with) outside of business, are always pretty much exempt from these SEC rules. Look into exemption 4(a)(2) for private placements.

For soliciting to public: If you are okay with raising 5mill or less check out 504, or you can restrict the securities and go 506(c).

If all your investors are not within USA, then take safe harbor.

SEC.gov | Overview of Exemptions Table

www.sec.gov

 

[wellington]

The non-compliance route doesn't sound too bad.

I know (of) someone and have had discussions with - Adam Todd, he did a legitimate ICO, real product, English, Devs in Europe.

Product delivered, no market fit, pivoted, and then was sued by the CFTC.

He raised about 3m - spent about 3m on the company (did pump the token via Market Maker, didn't dump it), no accusations of fraud.

Settlement: 17m$

Non compliance route doesn't sound too bad, say again?

And even if the CFTC, SEC doesn't do anything, it just takes one purchaser to get upset and in crypto everyone gets upset - just look at crypto twitter - and report and all of a sudden Civil Forfeiture comes into play, that 1 Yank that probably spent 20$ will have your entire corporate treasury seized, and your entire company/project will then be dealt with under US law (which is vague, lacks clarity) even if its just one American that spent 1 $.

In Crypto, you block Americans, you do no business (vendors) with US companies, no banking $ through the US OR OFFSHORE in $, you completely cut them out.

 

[cryptodefi]

but we do not accept US anyway. no US investors allowed

 

[wellington]

but we do not accept US anyway. no US investors allowed

A lot of ICO's had those same restrictions, American's lie.

They come in with their second nationality, and claim/sign they are not American then complain as American's if they loose money.

There used to be a Supreme Court determination SEC v Liu that restricted the SEC from going after funds that were used legitimately (ops, salary) in Crypto the SEC & CFTC ignore that.

Three years after Liu v. SEC, disgorgement is still a potent remedy for the SEC

Elisha Kobre of Bradley points out that the Supreme Court's 2020 decision in Liu v. SEC, placing limits upon the Securities and Exchange Commission's ability to obtain disgorgement, has had no real significant effect on disgorgement awards.

www.reuters.com

There's case law that predominantly foreign transactions do not give the SEC jurisdiction, the SEC / CFTC ignore that.

There's restrictions on Statutes (limitations) the Binance suite as an example is ignoring that $BNB ICO.

There's the major questions doctrine because its a industry not a fundraise -> the SEC is ignoring that.

There is no clarity - tokenised economies - by definition are representatives of many existing processes (cards, credits, etc) the SEC is strictly pushing they are basically tokenised stock and refusing to give clear guidelines because it knows the space will code around.

So if you are going to block US citizens, use a third party AML/KYC processor to confirm no touching US, no us Banking or $, no US Vendors (service providers etc).

Also note just because a process is standard and legal in say the UK, doesn't mean its legal in the US, and something standard and legal in the UK can be criminal in the US.

This is where the issue is with the US.

The lack of clarity leaves you heavily exposed to US laws and their laws come with draconian responses.

 

[cryptodefi]

Thanks for the explanation.

We have implemented GPS-based fencing and IP Filtering to exclude U.S.

However, the problem is not about the U.S. but the rest of the world. Since it won't be a traditional fund, with funds management, I don't know how to regulate the business. They would like to manage themselves, such as investing and claiming the tokens. No management.

 

[cryptodefi]

*From Exp*

If you want to do something 'legal', would suggest Labuan 3% tax (onshore activities) - will need substance.

Can you provide more details? Why Labuan, and why 'legal'?

Thank you