Doug Pepe – Co-Founder of Mango Farm Transcript
Note: This transcript was automatically generated by artificial intelligence (AI) and therefore typos may be present.
Rob McNealy
Today I am so excited because I get to talk to someone that I really like to talk to and the crypto space. I really like to talk to really smart people, especially securities litigators and attorneys that really understand both the legal ramifications of crypto but understand the technical and community aspects of crypto. So today, I’d like to welcome to the show Doug Pepe. How are you, Doug?
Doug Pepe – Mango Farm/GW Law
I’m great. Thank you very much for having me. I’m excited to talk to you.
Rob McNealy
Well, I’m really excited to talk to you too. I know it’s been really hard to get a good time frame window with you because you’re so busy. So before we jump in rate about what you’re doing with your project, can you just give our listeners a little bit of a background on who you are for your quote, unquote, day job?
Doug Pepe – Mango Farm/GW Law
Sure. Well, my day job is as a commercial litigator, I do complex commercial litigation, which runs the runs the gamut from, you know, hedge fund disputes, to you know, bank to bank disputes to mass torts and that sort thing, usually on the defense side, represent a lot of law firms that get sued for legal malpractice for things including, you know, opinion letters and securities fraud cases. That’s basically what I do sort of high, high dollar complex commercial litigation.
Rob McNealy
So unlike a lot of attorneys in the crypto space, you’re also an entrepreneur and that kind of sets you apart. And actually, that’s what we’re talking about today. We’re actually not here to talk about crypto law specifically. So tell us a little bit about your project mango farm?
Doug Pepe – Mango Farm/GW Law
Sure. So mango farm was a project that started I’ve been involved in crypto for, you know, several years for years. And, you know, I had never really done anything in crypto in terms of you know, starting a company or you know, coding anything. I set up a mining farm, you know, several medium sized mining farms small by today’s standards, with a friend of mine, a partner of mine, and I just been very interested in You know, sort of the law, the legal aspects of crypto and the technological aspects. So one day and I’ve told the story before but one day my my friend, you know, said why don’t we put together some mining rigs with our kids and you know, get them started on a gaming PC and they can start to mind with it and we, you know, we got a bunch of parts we, we put all the, you know, put the computers together and our kids started mining. We’ve built a big mining farm, you know, from our, from our perspective for our standards of big mining farm, but you know, it wasn’t enough for me and I’ve been, you know, sort of keen on crypto for a number of years and hadn’t hadn’t started any sort of a company or project so when I got involved in you know, learning a bit about Raven coin, you know, tokenized assets, you know, what the raven coin platform could do, I decided to, you know, to start my own little project, so, late at night after my wife and kids were asleep, I started coding the first version of what is mango farm and and you know, what? We do is and from from that day to this, it’s been, you know, pretty much every day of the week at night and on weekends working on this project. It’s a small project. It’s sort of very much in the startup phase. But what we do is provide tools for people to tokenize real world assets on the blockchain without the need to have a computer science degree. So we’ve got a little catchphrase, it’s, it’s a, you know, blockchain assets made easy. That’s our goal at mango farm is to make blockchain assets easy for people who can’t do it otherwise.
Rob McNealy
So specifically, you’ve developed a wall a set of wallet tools that specifically work on the raven coin platform. Sure.
Doug Pepe – Mango Farm/GW Law
I mean, you can take out your phone using our platform and you can tokenize an asset in less than a minute. With full metadata. You can include attachments, you can include icons, legal documents, contracts tokenize the asset even encrypt, you know I designed an encryption system for for Raven coin I open source You can encrypt the underlying metadata using the system right on your phone. It’s pretty cool. So you’re working really hard on it. I mean, it’s, you know, nobody knows about it other than people in the raven coin community, but we have been working really, really hard on it. And it’s still very much in the beta phase, but you know, it’s coming together.
Rob McNealy
So are you a coder as well or just an attorney?
Doug Pepe – Mango Farm/GW Law
I will, well, I’m a little of both. I used to code when I was a kid, right. So I would not consider myself to be an expert coder. I mean, there are real experts in this in this field. I’m not one of them. I know enough to be dangerous, but what I’m good at and sort of what I’ve transitioned into the role of at mango farm, I coated the first version completely myself. But I transitioned a little bit into a role of sort of, I come up with the concepts. And I’m, I’m the member of our team now, who remains sort of the most well versed in the blockchain stuff, the script language stuff, you know, sort of the old school coding, coding stuff, and I do all of that. So right now for example, we’re working on with encryption. Now we’re working on atomic swaps, and sort of the methodology for doing the swaps and all that that came from me. And sort of the first cut version of what the swaps should look like a script level that came from me. And now sort of the JavaScript and the backend coding and all of that that’s being done by a colleague that I brought on because he’s a much better coder than I am to sort of implement. And we’re an awesome team, the two of us really, we work well together because we iterate against each other pretty much all night long. It’s great.
Rob McNealy
So, the atomic swap functionality is that between Raven assets like Raven The Raven asset or from there even though their crypto assets
Doug Pepe – Mango Farm/GW Law
Right now what we’re working on is is Raven coin to Raven asset. The same concept can be applied generally can be asset asset, or it could be another crypto. If we did you know cross chain swaps with a hash time lock contract, we’re not at that phase yet. We’re still we built out. Now the sort of all the functionality for Raven Raven coin to Raven. asset swap. And now we’re basically putting together the front end the look and feel the UX and all that. So we’re going to put that out soon.
Rob McNealy
So, what inspired you of all things to do a wallet? It seems like if I was going to jump into a project, which a wallet is not the sexy thing that you think of at first, why would you start with a wallet?
Doug Pepe – Mango Farm/GW Law
Yeah, exactly. Well, mango farm really isn’t a wallet. A wallet is one of the tools that are needed to build a blockchain asset, right? It started with the builder. So we have a thing called an asset builder. That’s a simple web form. It’s got a set of metadata fields, you can fill it in, you can attach documents, you can put an icon to it. And that builder was sort of the the origin of the whole project, which was just to, you know, make a simple web form that people can use to build assets. From that it expanded to well, if we’re going to do a builder you have to sign right. So if you’re going to sign to create the asset, to sign the transaction, you need a wallet to do that. There were two ways to go. One way was to have sort of the web form the simple web form sort of integrate itself with a cutie or a daemon that the the user actually has on their computer. I sort of that was one way to go. I wanted to go the other way, which was build a wallet. So then I had to go build all the wallet features, had to do all the signing on the client side had to get in all the crypto learned it all and assets were actually pretty interesting because at the time this was now around Christmas time of 2018 was when we went to the wallet. There was nothing out there that signed Raven coin asset transactions. There weren’t any Dev, the dev kit wasn’t even out for Raven coin. So basically built it from scratch, straight from the you know, from the crypto, which was fun because I learned a lot. But that’s why we did a wallet and then we’re building you know, other tools. The wall is basically the repository for you know, it’s Web wallet. So, you know, it’s not a repository for large amounts of Raven coin, it’s basically a vehicle to allow you to put Raven coin into the system so that you can make assets with it. Asset Building is really the focus of the platform. So you’re basically creating a whole you know, usability layer on top of the Raven Queen platform to make it a lot easier and accessible for everyday users. Exactly. Because you know, when I was monkeying around, let’s say the summer of 2018 when test net came out with the asset layer before you know it launched in November, the fifth November 2018. But before that on Raven coin, you know, test net was available and I was mucking around this is what gave me the idea I was mucking around making assets I was using using ipfs to build out the metadata. Tron black who’s the lead dev of Raven coin published the spec for you know, standardized metadata, and, you know, I was making the JSON myself by hand and you know, and, and and you know, spinning up and ipfs nodes Damon and you know, making the ipfs file and attaching it was a very manual process that you had to go through. And my first idea for this was, why not just automate this and make it all simple. So I started with Tron spec, we don’t use Tron spec anymore, we have our own. Because, you know, we just wanted to add some features like multiple attachments. But you know, I started out by using transfect, and building this sort of application layer to allow people to tokenize assets very simply, I mean, the goal is to make it so simple that anybody can do it. And my kids do it all the time. So that shows me that we’re headed in the right direction.
Rob McNealy
Yeah, probably still more complicated than I can handle. I’m guessing.
Doug Pepe – Mango Farm/GW Law
Well, what we’re trying. I don’t think so Rob, but we’re trying. We’re trying to make it easier and easier as time goes on. And that’s the goal. Like for encryption, for example, I mean, to encrypt data for an average person who’s not versed in, you know, setting up the PGP keys and all that. That’s hard for most people. And so we did it with sort of point and click Here you go create your, we call it an encryption receiving address. It’s a special address that has a PGP key associated with it. And you can encrypt and decrypt asset metadata literally by just pointing and clicking on a website. Our goal is to do that with swaps, which we’re working on now. And we have, you know, a few other things that we’re that we have in the pipeline. And when we’re done with all that, then we’re going to go back to making the whole platform sort of look and feel a little bit more professional. It’s still a little, you know, wonky looking. So we’re leaving that for the end.
Rob McNealy
So, how are you funding this project? Do you have outside investors, VCs Angel, money?
Doug Pepe – Mango Farm/GW Law
Self funded.
Rob McNealy
Yeah, wow.
Doug Pepe – Mango Farm/GW Law
I do a lot of the work. You know, my I’d say 50% or 60% of the work is is me in terms of the concepts in the you know, the blockchain related stuff and the going back and forth. We do have a developer that we now have hired, I have a partner who’s my good friend, it’s more I would say it’s more my sort of labor of love than his But the two of us, you know, funded together and we have so mango farm is a public platform that’s there basically, it’s free. There’s only one thing we charge for on the platform, which is the encryption and we’re not doing it to make money I’m doing to test in the concept of, of, you know, charging for these sorts of things, but it’s 25 or even to create this encryption receiving address once you make zero dollars off of it, but you know, mango farm is if I had my druthers mango farm is going to always be free. It’s not there to make me money. It’s there as a platform for me to learn and continue developing these tools. And then we have sort of a separate side thing project going on, which is you know, if we’re going to make money with manga from this is the way we’re going to make it which is that we’re white labeling it for specific asset classes. So we have to one of one of which we own, the other which we own a percentage of the company. Someone came to us, I can’t disclose what it is. Now, as I’m sitting here, it’s coming out soon. And we’ve been working on it a lot very hard, which is a specific asset class that uses the mango farm tools plus the swap feature that we’ve been working on for a pretty cool outside the box asset class that really has a need for what, for the tools that we can provide. So we signed up with that back in the summer. And we’ve been working pretty hard on the side, there’s nothing out there about it, other than the fact that I’m saying that we’re doing it and you know, in a couple of weeks, maybe maybe two months time at the outside, that’s going to be coming out. It’s pretty cool.
Rob McNealy
Could your set of tools be used or apply to other block chains?
Doug Pepe – Mango Farm/GW Law
So, the The answer is yes. With modification, right. I don’t really have the same degree of knowledge with other asset based blockchains that I do with Raven quenchers because I’ve been working so much with Raven Quinn. You know, theoretically, you could you could use similar tools to those we built to put a second layer on top of Bitcoin, you know, as an opcode although you wouldn’t have the sort of UT xo benefits that Raven coin has, and I don’t get too technical. I don’t know how technical your audience is. But, I mean, one of the key benefits of Raven coin from my perspective, is that every asset has its own individual UTF. So, what you can’t get with Bitcoin, unless you use a second layer, like, you know, like liquid. I don’t know all that much about Did you bite? There are platforms out there, though, that I think you could use similar tools. I think people are building similar things on other platforms. But you know, I like Raven coin. I like the fact that it’s, you know, I like the ethos of the project. That’s what attracted me most to it. And that’s what got me started building. And so I think, you know, I’ll continue to build we do want to add other decentralized projects to our, to the wallet side of our platform. So we are going to end Bitcoin probably kind of add Litecoin I’d really love to add grin, but I don’t know enough right now to know if we can do it, you know, in a in a simple and clean way. And I really like flow too. So we’re looking at other things to add, they’re relatively easy to add. I mean, all the tools are the same, because Raven coin is based off of Bitcoin original Bitcoin source code. So the answer is yes, some of our tools are going to be used, we’re going to add other projects. In terms of the asset building now, I think we’re pretty much going to stick with Raven coin. Maybe when I learned a little bit more about flow, maybe we’ll you know, sort of consider using alleppey in some way. But I’m still you know, that this is an iterative process. It’s an everyday process, you know, each new thing is a new thing that I’m learning. So, you know, doing doing swaps came from conception to, you know, implementation and in a couple of months of me reading and learning and doing Same thing with, with encryption, you know, so sort of biting off chunks, getting them done. Moving on to the next thing. So eventually I’d say you know, maybe maybe three or four months, we are definitely going to add Bitcoin, probably like coin and then I’ll see about other other coins to the wall.
Rob McNealy
Oh, well, we’ll have to talk about that. But I’m always thinking about my own personal self interest on any of these products. But I think you you dovetailed into or segwayed into a really good point is that it’s amazing. And once you start getting into the technology, you see the other opportunities that present themselves once you have a better understanding of the space, and it’s..
Doug Pepe – Mango Farm/GW Law
It’s amazing. The more I learned, the more I learned the deeper down the rabbit hole I go. And, and, you know, look, I have a full time, more than full time day job. I also have four kids. I wouldn’t be doing this if this wasn’t a very serious passion that I have. And I just love to learn. So the more I learned, the more I realize, I don’t know and the more I want to learn and that’s been The course of this mango farm experience for the past year and a half basically.
Rob McNealy
Do you ever see yourself segwaying into the world of cryptocurrencies and the mango farm project full time? Or is that a goal? Or is it just something you see you’ll keep doing on the side?
Doug Pepe – Mango Farm/GW Law
I’m sitting in my law firm right now. So, look, I love it. That’s all I can say. You know, for me to transition fully from my, my, you know, my legal practice to blockchain full time would take a lot in terms of, you know, just being able to, you know, my family’s accustomed to a certain way of living, my kids are in private school. So, if I were left to my own druthers, I’m just gonna say this, honestly, if I if I, if I didn’t have a wife and four children, I would have done this a year and a half ago. But I do so I can’t. But I’m sorry.
Rob McNealy
I hear that and, you know, people say that about you know, all us with our because we have a community project to and and, you know, same deal like for us to like go full time and it would be it would be very expensive. Yeah, because I have four kids as well.
Doug Pepe – Mango Farm/GW Law
There’s a big opportunity cost. And you know what you can take risk for yourself but you can’t take them for your family. So that’s where I am. Yes, the answer. I want to give you a short answer your question. Yes, I do want to do it.
Rob McNealy
Well, that’s good. And I appreciate the honesty and I wasn’t just trying to put you on the spot. I just I just like this I was more trying to gauge your, your level of passion, you know, for it kind of thing. Some people are like, Oh, I just want to dabble and play around or some people are like, No, I’m really, you know, I see this is the future and I want to be a part of that.
Doug Pepe – Mango Farm/GW Law
Do you remember Spinal Tap when they had up to 10 and you could go one louder. I’m at one louder.
Rob McNealy
Yeah, exactly. And, you know, I can you know, I can completely relate because you were a drummer, I think right?
Doug Pepe – Mango Farm/GW Law
Of Us. Yeah. I mean, I still am but not as good as I used to be when I was a kid. Yeah, I was I played drums for most of my life before I went to law school, and it was a real passion. I used to play drums for 12 hours a day. Literally 12 hours a day, I play into the wee hours of the morning. Pretty much every day. It was my thing.
Rob McNealy
Did I ever did I ever tell you that I was in a metal band and a grunge band when I wasn’t lead singer? Actually, I’m the first. No, no, the band’s name was bludgeon actually. So I can relate.
Doug Pepe – Mango Farm/GW Law
Someday you and I’ll have to, you know, get a kit and you know, get some get some musicians to you know, jam around a little bit.
That would that would be fun. I would love someday for me to be able to go back into that passion. I used to speak I actually used to sing in formal choirs as well. Classic choirs. Excellent. So actually, the last quarter was in wasn’t that long ago. So, but yes…
Keeping up with it. I mean, that’s the hard thing is keeping up with it. You know, I I played I played in a band I’m not in the band right now I could go back. But I played in the band for about two years. And stop, my wife got very ill she had cancer. So I had to stop basically for that. But before that I was playing, you know, I was playing at least once a week, and we played out, say, once every three months at a local club, or bar, and it was it’s just great to get out there and do it, you know. So I think it’s awesome that you’re still saying,
Rob McNealy
You are not a typical attorney.
Doug Pepe – Mango Farm/GW Law
I don’t know what a typical attorney is..
Rob McNealy
..not not as cool as you. I’m thinking polymaths that word is coming to mind. Right? But but but it’s good. No, but I’m serious. Because it’s like, it’s good to see you know, someone that is really, really intelligent, but gets it and a lot of times, you’ll find people that will, you know, have a certain expertise in one area, but they’ll be lacking in every other area, like common sense. Certain developers come to mind in this regard, but you seem to get it and you well balanced. And I think that’s important. And I think it’ll definitely take your project to, you know, really high levels of success. So, as far as being a securities attorney, how do you I mean, that must skew how you look at crypto and crypto projects. Does it scare you more than what you know, securities laws and stuff being in this space? Or does it make you more confident that you are avoiding, you know, minefields?
Doug Pepe – Mango Farm/GW Law
No, it interests me. That’s, that’s one of the things that interests me. I mean, my background in terms of my professional background, right, I had a background in economics, mathematical macroeconomics. That’s what I studied in school. Then I went to law school, I got out I practice as a litigator. I’m not a corporate lawyer, so I don’t give sort of before the event advice. as a general matter in my day job, I get to see things after the fact. You know, in securities cases, typically the securities class actions where you know, the alleged misrepresentation occurred. Rarely do you have a question of whether something actually is a security I had one big case where that was the centerpiece of the case. The case involving this alleged Ponzi scheme by Allen Stanford down in Texas, and Louisiana, I represented the law firm, a law firm that was involved in that. But you know, I don’t get a chance to really analyze these things in my day job unless I have to, unless it’s for a particular case. And then, you know, you really drill down and you become an expert in that very narrow issue. What I love about crypto is it sort of got pieces of all of the things that I that most interested me in my life other than music, you know, the sort of computer science coding scientific aspect of it, the social construct that surrounds sort of blockchain governance and Nakamoto consensus versus you know, the sort of approach to the theorem staking that through to the economics, you know, the token omics, the economics, the game theory aspects, which I was really interested in when I was a kid, when I was in college, to the legal aspects, so I really sort of like the whole big picture. And that’s what drew me. That’s what drew me to crypto it wasn’t, you know, sort of you can buy bitcoin today and you can sell it for 20% more a week from now that really didn’t interest me at all. It still doesn’t interest me. So that’s what drew me to crypto I, you know, I don’t really practice in the crypto space, I’m working with a I’m working as sort of an advisor for an exchange. But, you know, other than that, I don’t really practice in the space. I do teach it though. I mean, I teach blockchain law and technology at GW law and DC. And, you know, what I love most is that it’s a space where the rules haven’t yet been set. The rules are still being made literally day by day, case by case. You know, as we go, and that interest me the most because you know, each new day you have a new filing by the SEC, you have a new speech of new statement, you have a framework came out you know, it changes the analysis, it changes how you how you view things. And I think, you know, it’s going to take about 10 or 15 years for the courts to sort out some of the issues that have been Paramount post, sort of, you know, the egregious Icos that happened in 2017. to sort out, you know, where you separate the wheat from the chaff, you know, and sort of draw that line of where what a security is in the context of crypto two very interesting dynamic analysis. And I’m looking forward to getting some, you know, case law, which is where was really made, you know, it was made through official formal regulations and cases, interpreting whether those regulations comport with a statute. It’s not made through speeches, and it’s not made through sort of side consultations. And, and over time, we’re going to start to see case after case after case in various jurisdictions in the US start to come up with, you know, attempts to define, you know, where the line is between a security and an unsecured as those cases sort of riping, you’ll start to get conflicts among the circuit courts, which are the higher higher level courts, the appellate the first level of appellate courts, in in federal cases, and then ultimately, maybe, you know, 1515 years from now we’ll have the halli of crypto out of the Supreme Court. And you know, we could get a completely different tests out of that case, or they could stick with the howey test, it’s going to be really interesting just to see how this progressed.
Rob McNealy
You know, the one thing as a as a project that’s worked really hard to, you know, actually not do things that are illegal and get in trouble and all that stuff, just from the regulatory risk side of it, is, it’s complicated, because, and you know, what, my day job, I’m an expert witness. So I’m fairly good at looking at rules and laws and understanding what their intent was. The problem comes in, especially with these guidances from a project standpoint that I’m seeing is that a lot of times they’ll give you three or four examples of how their guidance can be applied. The problem is what we want to do isn’t one of those examples. So what do you Do case and that’s the problem. Like I, I’ve had a situation recently where I think I look at something and I read it this way. And I’ve talked to, you know, attorneys about it, and then their attorneys disagree with each other, you know, and you’re like, what do you do as a project at that point? Because, yeah, I mean, if you make that mistake, even if you don’t have, you know, a malicious intent or something you can get in a lot of trouble. Definitely. And I think that that regulatory risk now there’s a lot of people like two years ago, they didn’t care, right? They just like, throw it out there. Well, we’ll raise you know, $30 million in 10 seconds and right you know, it’s worth whatever the risk is, but guys like us that are like one I don’t want to go to jail to I don’t have them, you know, millions of dollars to fight this anyway. And, you know, what do you what does it project to do?
Doug Pepe – Mango Farm/GW Law
That that’s it. Look, the SEC has provided we’ll talk about SEC, we can break this sort of into chunks, but I mean, the SEC has, I think done a great job of at least trying over the past two years, to give more and More and more, and there was no guidance before. Right. And, you know, there have been a couple of speeches, there was the framework, there was the Dow report, you know, they’re making, I think, a concerted effort to reach out and say, you know, this is these are the sorts of things we’re looking at at the SEC. But it’s difficult, right? You know, these are rules that are typically applied to sort of major capital raises by, you know, significant institutions that are sort of being applied at a, you know, at a granular, granular level to small startups in an uncertain in an uncertain context, right. That’s what makes it difficult. If you have a startup and you want to raise capital, you want to, you know, set up a Corp and you want to raise money from people. The rules have been set for many, many years, you know, you know, these are the types of lawyers you can go to. This is the type of advice you need. This is how much it costs. It’s sort of not cookie cutter but it’s it’s there’s a process right? And that process has worked out over many, many years. With crypto, it sort of that whole process was was sort of applied instantaneously to an area that still remains uncertain. I mean, there’s a lot of debate between people over whether I mean, just look at the graham case, right? There’s a debate in that case as to whether the underlying token itself is the security or is the investment contract something separate? Right, it’s not so clear. And you know, what happens if you if you I tweeted about this the other day, actually, I mean, what happens if you, you know, have boxes of graham crackers, right, and I branded boxes, and you sell those boxes to a set of initial purchasers. So let’s say 1000 2000. You sell the boxes to them, and you say, I’m going to use the proceeds of this initial box sale, to market the heck out of these branded graham crackers. Right. There’s two questions involved in that. First question is, is that an investment contract? Probably. Second question is, are the graham crackers themselves the securities? Is there a difference between the investment contract the sort of agreement or understanding between the promoter saying, Give me your money in exchange for these graham crackers, I’m gonna use that money to build out this ecosystem for making these graham crackers increasing value versus the graham crackers themselves are those securities that’s going to be dealt with I think in the Southern District in the next…
Rob McNealy
Well that sounds like then that’s where you know, the the argument of like is the utility of whatever the thing itself is when they’re combined, does that make something different from crypto than a typical investment contract, right?
Doug Pepe – Mango Farm/GW Law
Even like class struggles with semi anything can be security. You can make an investment contract out of anything right? That’s different, though, than whether the underlying thing itself The thing is the security or the investment contract something different. I have my own views. I’m not going to stay them, you know, because no, it’s just a debatable issue. And that’s what I love about this space is that there’s lots of debatable issues like that. But I want to hit your question directly. It is hard, right for small startups to and thankfully, the SEC has started to give some guidance and fincen has put out excellent guidance. I mean, it their guidance is actually pretty, pretty darn clear. I mean, you can read the fincen guidance, and you can sort of know where things stand. Not always but you know, for the vast bulk of general applications, which I thought was good. But you know, you you have you can’t operate in the space. Without a lawyer. You just have to have legal advice. Maybe that will change over time, maybe the rules will get more solidified maybe courts will start to issue decisions that clarify things setting that line. In a in a Sort of judicially recognized way. Yeah, this is you can back away from a staff statement in litigation. There’s nothing that binds the SEC to a staff state in a particular jurisdiction if the Second Circuit Court of Appeals, which is the court that we have here over New York, and other states, issues of decision if you’re inside the Second Circuit that decisions, the law. So over time, you’re going to start to see the law develop. And I think it will make it easier. But for now, you know, to have any sort of any project that involves anything close to money transmission, any project that involves anything that’s close to touching on whether it’s a security. You just absolutely. You just need good counsel.
Rob McNealy
Absolutely. You’ve also been pretty vocal on your Twitter account about accredited investor laws. Yeah. Tell me about your kind of position or opinions about that.
Doug Pepe – Mango Farm/GW Law
So look, the accredited investor laws are interesting, right? Because the legal framework surrounding being accredited accredited investor rules is, is it a public offering? Or is it a private offer? That’s what the statute, the statutory distinction is between public and private. And it’s sort of morphed. There was a Supreme Court case, you know, 40 years ago, that said, you know, it was a case involving Ralston Purina and the and sort of the employees of Ralston Purina getting stock. And the court said, you know, if, if it’s an offering to a group of people who can fend for themselves, it’s a it can be considered a private offering. Right. And what is fend for themselves mean? It really means, you know, are there informational asymmetries or you know, are is this class of people capable of, you know, analyzing and understanding the risk, that’s sort of how it was subsequently interpreted by the SEC. So the SEC past, you know, the accredited investor rules in the early 80s. Basically, you know, trying to put a fine line, it’s a safe harbor. It’s putting up putting a box around if you if you if you only issue the securities to these accredited investors, you’re okay, that’s a safe harbor. It doesn’t really it’s not even designed to address that that public private distinction. It’s saying, if you if you satisfy these rules, you, you know, you’re going to fall within a private offering, except now, I just think the rule is targeting the wrong thing. And, and I think it, you know, back in the early 80s, it probably didn’t have that major of an impact but entire industries have now then sort of created surrounding the notion that there are two classes of financial citizens in this country, one class is, you know, those who have wealth or sufficient income under the rule, they get to participate in the party and another class of citizen that are you know, I don’t want to say stock but are limited to investments in the public markets. For the most part, I don’t think that’s the right way to go. I think if the question is and again, this is not really what the statute says, but if the question is, do we only want people who can understand risk to have the ability to invest in certain, you know, certain classes of securities, then you know, I like the Tron black had an idea I thought it was brilliant. Have a test. I don’t know if it was his originally but you know, have a test something similar to sort of a scaled down version of what broker dealers need to take this, I forget the the broker dealer test, but there’s two tests and one test is the test that you take in order to be able to take the series seven, something like that, you know, almost like a driver’s license type thing to see if people can understand risk. But I don’t think you know, limiting limiting an entire class, you know, all private equity, all of hedge funds, you know, many real estate Investments, oil and gas and all sorts of lucrative and in some instances sit very safe investments out there that, you know, I don’t know what the percentage is, but it’s something like 90% maybe more of the American population is completely barred from participating. I just don’t think that’s fair.
Rob McNealy
And what’s the general litmus test to be an accredited investor? Right now, a lot of people here might not know the million.
Doug Pepe – Mango Farm/GW Law
I think it’s really funny. I haven’t done this a long time, a million in assets to 50 in income,
Rob McNealy
I think, isn’t it? I think it’s 300. Right? I think it’s 300 and year and income, if you’re married and then a million in net assets, excluding your home or primary residence, excluding your primary residence,
Doug Pepe – Mango Farm/GW Law
I only had this come up in one case, it was actually that case that I told you about, which was that there was a reg D offering. The question was were these certificates of deposit securities. And one of the issues in the case was, you know, was the was the Did the company properly authenticate that all the people who were receiving these certificates of deposit were accredited investors? You know, that there’s an example. Right? These were these were, it turned out fraudulent investments. But, you know, take take a good security that sort of fit within the mold of what that company was doing. They were defrauding people, or allegedly defrauding people, but take that mold and make it, you know, turn it into a safe investment with proper disclosure. You know, why should the regular folks be precluded from investing in that why should regular folks be precluded from investing in a hedge fund?
Rob McNealy
Well, I mean, you look at it, then the same folks that don’t meet the accredited investor regs can go and play the lottery ticket in every state that has which has really, really much higher risk and Don’t even get me started about scratch offs and casinos. Right?
Doug Pepe – Mango Farm/GW Law
I saw one article, I agree with you i saw one article I found a fascinating was on Twitter. It was an article from I think, was the Boston Globe. But it was about the Boston securities regulator, because you know, each state has its own blue sky laws, the Boston securities regulators, barring people from investing in the apple IPO because it was too, it was too risky.
Rob McNealy
Wow, that was great. You know, that came I saw that right around the time of, you know, the the new proposed rules for the accredited investor expanding the accredited investor rules to allow, you know, employees of employees of hedge funds to invest but not everybody else. I, you know, look, there’s a rational way to approach this and if the issue is Do people understand risk, and that can be test, but I don’t see wealth or income is having anything to do with you can have an Uber rich person Who knows nothing about finance. And you can have a you know, a small business owner who doesn’t meet the income threshold is just under the is just under the, you know the the wealth threshold and and still understands the risk fully. You can have PhDs who are starting out as finance professors at the Wharton School of Business, who don’t meet the accredited investor test, but are some of the most sophisticated financial economists in the world. It doesn’t make any sense. Well, I was gonna make sense.
I agree with you on that. And, you know, I go back and look at you know, Angel I’ve been around the angel investing world a lot. I know a lot. I’ve looked at a lot of small business pitches, like hundreds of them over my life. And I can tell you that at least as a small business and an entrepreneur, you know, I as I’ve been an entrepreneur now for 20 years, and I can tell you that you learn a lot about risk mitigation and seeing opportunities being an entrepreneur that you You would never have been like an employee of some other company, right? Because that’s just part of, if you’re going to be successful as an entrepreneur, and you’ve been in a lot of different industries and entrepreneur, you just learned these things. And I do think that they have an advantage when it comes to early stage investing for sure. What I don’t really quite understand in get is where the government drew these lines, because on on the threshold of economic value, because you’re right, I don’t think there’s a one to one relationship between how much money you’ve amassed, and, you know, your knowledge of risk assessment.
Doug Pepe – Mango Farm/GW Law
There’s not this this for me as a matter of just general interest. It’s not something that I do. But I did, you know, go back, I looked at the regulatory history, just out of pure interest. I looked at the regulatory history to trace through the rules and trace through sort of the, the commentary from the SEC rules, to the regs and and it sort of morphed over time. More from that pure in a case into this test, there was a period where the SEC had you know, you had the ability to, you can still invest in, in, you know, reg D exempt offerings. If you had, if you consulted with a financial advisor, which makes a lot of sense to me, and that, that, like this rule, the problems that I have with the rule, I think, would be largely eliminated. If if, you know, your average Joe, in consultation with an investment advisor or a, you know, a broker dealer. stock broker could could invest, you know, using the knowledge and expertise of the person that’s advising them on their investment. The difficulty I have is just borrowing a whole class of people based upon a criteria. It doesn’t target the issue that we’re attempting to target. And frankly, none of it targets the question whether it’s public or private.
Rob McNealy
Yeah, and I want and then it comes back to you know, the more libertarian part of me says, Why is this the business of the state to protect People from their own bad investments.
Doug Pepe – Mango Farm/GW Law
Look, you can invest $1,000 in a big screen TV, but you can invest $1,000 in, you know, in some lucrative unicorn that really does have the potential to increase your wealth. It’s just it’s very paternalistic from my perspective, and I understand the rationale behind it. And I understand the desire to protect people. But you know, look, fraud is still covered at fraud in connection with the purchase or sale of a privately issued securities is just as covered by the by the law is fraud in connection with purchases held the public security. So it’s not really about fraud. It’s about informational asymmetries. And, you know, I think people, I think people are well suited. I believe in free markets. I believe in the ability of, you know, even average people. And I don’t even know what that phrase means. But you know, people who don’t have master’s degrees or college degrees in finance to understand Sort of innately the risks of what they’re doing. And I just I rankle it, you know, sort of protectionist or paternalistic sort of approach. It’s like, you know, you have to be rich enough, in order to be able to do this is really there really aren’t very many things in this world where we have a litmus test on whether you can or can’t participate, or buy it based upon, you know, how much money you inherited from your mom and dad.
Rob McNealy
It’s not really fair, I don’t think and I think, you know, hopefully, it’ll change. But speaking of changes, what do you see, you know, coming down the road litigation, wise rulemaking, why’s that? You know, you’re kind of got your ear, you know, to the politics side of it, or at least the legal side of it. Do you see any major changes coming when it comes to crypto law over the next year, two years?
Doug Pepe – Mango Farm/GW Law
Sure. Yeah. I mean, I think we’re going to start to see more cases. We’re going to start to see a little bit more refinement. Around the, you know, sort of the security non non security line, I think, you know, we’re going to start to see implementations of financial action, Task Force, sort of principles. And we’re going to start to see maybe a change here in the US, you know, at a granular level, but on some things, you know, the applicability of the travel rule and that sort of thing. For money transmission purposes, I think states are going to start refining their money transmitter rules.
Rob McNealy
A little bit more over time. You know, right now, a lot of states don’t even have them or several states don’t have them. Some states sort of, you know, don’t have clear rules that really the crypto I think we’ll start to see more and more of that. I would like to see a bit of a change in in New York. bitlicense. I think the whole industry would, and I think that I sort of sense it that’s coming. You know, we’ll see. And I think you’re going to start to see more sort of libertarian leaning states like Wyoming Come up with interesting new sort of vehicle legal vehicles for, you know, that are sort of blockchain friendly, right. The one thing I know that Wyoming is thinking about at least is, you know, having sort of a construct for tokenizing assets. It’s actually a fascinating it’s a really fascinating issue. I’m on this I’m an advisor or an observer to this uniform law commission. Committee. I’m not directly you know, drafting anything, but I’m sort of an observer. I’m a member of the American Law Institute and the a like, it’s observers on this Ulc commit Ulc is responsible for the Uniform Commercial Code. And one of the things the hot button things that come up in the ULC discussions is you know, some choice of law issues. And, and let me explain what that means. So if I if I create a blockchain asset token, okay. And that’s it. Let’s say that token is one One Note no fractionalization. But that token represents the ownership interest in something, a widget, a piece of art, whatever you want it to be some asset in the real world could be a complex derivative or it could be a, you know, something that’s sitting on the ground like a rock. So and I sell that I create that token, and I sell the token to you, and you buy the hook. Right? And we can have a contract between the two of us. And that contract can set out things like you know, we’re one of the two of us can sue if something you know, something goes wrong, what the law will be, that’s a contractual right and you need in order to have a contract, you need two people that are interfacing with each other and you need an offer and you need an acceptance, you need consideration. And then you have a binding contract. And that contract sets up the terms but third parties, secured creditors, third parties that may have some interaction with with that If you sell it to a third party without entering into a contract with them, you know, there are all sorts of legal issues that that are implicated once you get beyond the meaty you exchange and our agreement. Okay? I don’t have too much in the weeds on the legal issues, but it’s really fascinating. You know that that sort of issue doesn’t exist in with certain asset classes. So Delaware, for example, is the centerpiece of corporate law. And when you create a corporation in Delaware, your that corporation is a creature of Delaware law. It’s it’s sort of created by Delaware, Delaware law didn’t exist before that. So then if you have a share in that Corporation, the rights and obligations of the management of the company, the corporation, and the security holders of the corporation, those are all governed by Delaware law, no matter where you are in the world. It’s called the internal affairs doctrine. And the reason is because that the corporation itself itself didn’t exist, but for the Well, the same concept can be applied. Same thing with LLC. So no matter who you are in the world, your rights and obligations visa v. The corporation, if you’re a shareholder are governed by Delaware law just just from, you know, without any contract. I have a similar concept I testified about this last year in Wyoming. And I think they’re thinking about it. I know they’re thinking about it, or at least considering it is to have you know, asset tokenization be the same type of concept just like you can set up an LLC, you can set up this direct ownership of real world asset by tokenizing, that asset on the blockchain. And this is sort of the idea is to have a legal construct similar to the creation of an LLC that sort of surrounds envelops that that creation of that token and the relationship of that token to the real world asset. Once you do that, then it solves all sorts of things right. You can have, you know, in the statute or you can have in the organizational document. The equivalent of the organizational document that, you know, all disputes will be resolved in the Wyoming Court of Chancery that the applicable law with descriptive disputes arising out of the ownership of that token, or the rights and obligations of the token holder to the asset, are determined by Wyoming law. And then you can set start to set up a body of precedent around this. So for me as a lawyer, that’s really interesting. I hope things like that start to come out. So, you know, that’s a long winded way of saying, Yes, I think there’s going to be sort of refinement in the regulatory space and also an advancement, I would call it in, in sort of the usability the laws that govern the usability of these things, these blockchain assets. General. So yeah.
Yeah, I guess it’ll be interesting to see how government in you know, looks at say a token is a token, a share, or, you know, I look at like, they have fractionalization ownership of like aircraft, for instance. And so that’s not a secure But where you’re buying it is an investment, generally you’re buying it is just like, okay, there’s one owners, you want to use this for owners at Starcraft. Now how that generally works in with aircraft and I have experienced I understand how this works in the aircraft industry, maybe there’ll be a company set up, which actually holds title legal title to that aircraft. And then like an LLC might be set up in Delaware or wherever and then there’s four owners. And then when there’s a change in ownership, then just like if you’re bringing on a manager to an LLC, or getting rid of one, and I guess the difference would be instead of having that paper change of, you know, directly direct ownership. Now, the question is, and this is where I think the technology is different is physical possession of that token as much as you can physically hold a digital token. But if you hold that token now, do you own legal…
Doug Pepe – Mango Farm/GW Law
…are you entitled to the asset?
Rob McNealy
Do you And that’s I think the thing that’s hard to get even my own head around is, is it more just like a deed for instance? So, you know, if I have does and the question is, provenance is part of this, too, I would think just because you necessarily have physical possession doesn’t mean you have right to have physical possession of that token.
Doug Pepe – Mango Farm/GW Law
I mean, you’re raising a lot of really interesting issues. So so the corporate model, right, or the LLC model, the sort of the, you know, putting the asset inside a structure or a Delaware statutory trust, all of these things are vehicles, and the vehicle holds legal title to the asset. And then the shareholders or the LLC members or you know, the beneficiaries have beneficial title, they don’t actually have legal title of indirect title to the underlying asset. So if you set up an LLC, and you stick in that LLC, one Picasso and then you sell interest in that Picasso through the LLC, right, so you have 100 members of the LLC, each one has a 1% share that That’s not direct ownership. What I’m talking about is a little bit different doesn’t exist, but right. That’s new. That’s a new thing. It’s a new thing. And you know, they’re going to be but the answer your question is it is uncertain, right? So if I create a blockchain asset and I say this asset is a Costco token, and Picasso token is represents all right title and interest in into the underlying asset, a caso saucepot in the kitchen, I think is one of his paintings. Right? Or Rembrandt, Aristotle contemplating bustah Palmer, which is one of my favorites, right? So if you have that construct, right, and then I sell this what I was talking about with choice of law, and I sell that to you. Right? Well, how do you know that the state where you are, is going to recognize that ownership interest? What if you move to another state? Is that state going to recognize the ownership interest in how to go ahead…
Rob McNealy
But but how do you even know that that blockchain had the right to sell ownership in that first physical objects…
Doug Pepe – Mango Farm/GW Law
You don’t, you don’t know, you can do it with a contract, right? You and I can contract with each other that says, you know, here’s a piece of here’s a notepad, right? And you know, now this is even better. This is a puck, right? If you and I agree that the holder of this Puck owns the asset by contract, and we say, all right, title and interest is, you know, imbued in this puck, the odds are the court the courts not gonna enforce the puck, the courts can enforce our contract, right? Because we can contract basically for anything that’s legal. You know, sort of very, very, very different than when you’re dealing with third parties, when you take that pop down and you sell it to a third party. You know, a third party may not be bound by whatever rights another and this is not just pure ownership and ownership is a bundle of rights, right. So some bundle of rights is going to get, it could be the possessory interest in the Picasa. It could be a non possessory interest in the gossip, it could with tag along and drag along rights. It gets, you know, interesting, right? So if I want to create a bundle of rights separate out a bundle of rights from the sort of pure possessory interest of a real world asset, and I want to sell them to third parties, but I want to do it in such a way that all the rights and obligations between the various parties are not limited to the direct contractual relationship between me and the initial seller and the initial purchaser. It gets interesting. That’s why I sort of came up with this idea. I hope that you know, I hope it gets some legs it needs a lot of sort of thinking through and refinement. And, you know, believe me, I don’t you know, I don’t do property law as part of my day jobs, so, you know, real estate lawyer might be actually better to serve actually structure all of this. But look, I think vehicles like this need to be thought through because before there was a corporation, there wasn’t a corporation. And now our entire finance system basically, is corporations issuing shares, corporations were disfavored, they were frowned upon a New Jersey first and then Delaware after New Jersey, sort of broke new ground when they switch the whole world from, you know, sort of the big trust that used to exist, most of which were in New Jersey, to, to, you know, the corporations that now rule our financial system. I think a similar thing can happen, but it doesn’t, you know, it relates to all all assets, all, all asset ownership could be reposted on the blockchain eventually. And I think, you know, it’s got a lot of potential benefits, you know, alienation of property and the free sort of flow of, of property is surface that has a significant sort of historical impact on society. You know, I mean, think about what the feudal system was a feudal system was, you know, peasants living on land that was owned by a Lord that you know working on the land but they didn’t own it, they were unable to alienate their interest in the land. And thinking out think about from that day to this will you know how our property alienation system has grown right. Same thing with any with any property, any property tenant should be, I think tokenize on the blockchain and potentially fractionalized, but it’s going to take a long time before the systems are in place, because they’re not malicious.
Rob McNealy
It’s going to be complicated. Doug, we’re running out of time where can I find out more about you and where can my listeners find out more about you?
Doug Pepe – Mango Farm/GW Law
Sure. So you know, I’m personally on Twitter, it’s at mango farm assets. You can find out more about mango farm at mango farm assets com that’s our you know, our wallet in our builder tools and our viewer on Ravencoin. You know, I’m out I’m out there. You know, I do podcasts like this. This is my first video one but I do podcast from time to time and you know in terms of legally most of the folks You’re watching this probably wouldn’t be interested in retaining my legal services because I’m a commercial litigator. But you know, you can. You can Google me and it’s Doug Pepe. And I am I’m really happy that you gave me the opportunity to speak with you because I always enjoy talking to you. And now we’re doing it on on video. So
Rob McNealy
This is a trip and I always learn more. I talked to you, Doug, thank you so much. Make sure you check us out on the web at RobMcNealy.com.
Doug Pepe – Mango Farm/GW Law
Thanks, Rob.