Russell Bruemmer is taking it upon himself to help token issuers construct compliant initial coin offerings (ICOs).
While that might sound challenging in a space where the regulatory framework has not been formalized, Bruemmer is as prepared as anyone could be in his new role advising blockchain startup Applied Philosophy Labs (APL).
A former top lawyer of the U.S. Central Intelligence Agency (CIA) and the former lead of the congressional affairs unit at the FBI, Bruemmer gained the relevant experience working for decades at for the law firm of WilmerHale, helping traditional companies structure their corporate governance.
In recent years, he said, he was approached by a number of blockchain entrepreneurs trying to figure out if the token they wanted to issue was a security or not.
As a result, by the time he retired from the firm in 2015, he had laid the foundation for his work advising startups more broadly.
“[Bruemmer] seemed like exactly what I needed in the new venture,” said APL founder David Levine.
In a climate where the Securities and Exchange Commission has been cracking down on crypto token fundraising schemes, Bruemmer knows he has his work cut out for him.
At APL specifically, he has helped the public benefit corporation draw up plans for a network of humanitarian companies that would sit underneath the parent entity and issue regulated cryptocurrency tokens.
To fund the humanitarian companies, he helped create a template to comply with the SEC’s Reg CF and Reg A+. The hope is that, eventually, this compliant structure will define a path to public offerings via an S-1 filing and S-3 filing.
Bruemmer told CoinDesk:
“We are using corporate and governance structures that will be familiar to, and thus comfortable for, our investors. This is another aspect of our intention to be transparent with our investors and regulators who have jurisdiction over our activities.”
And the first company that gets the treatment is solar power startup Indeco.
A power play
Indeco was one of the reasons Bruemmer was intrigued with APL in the first place, he told CoinDesk, since he already had an interest in how a compliant crypto token could incentivize the adoption of solar power.
And so the crew got started.
Speaking to Bruemmer’s insight, Levine told CoinDesk:
“Within a couple hours, we had mapped out the whole plan on how to build a regulatory compliant crypto.”
For Indeco’s ICO, people can purchase an ethereum-based ERC-20 token pegged to a single watt of solar capacity. They are then being offered an ownership stake in assets installed with the funds, including solar panels, batteries and microgrids for decentralized energy distribution.
“We’ve evolved from cryptocurrencies which are based solely on algorithms and trading values, etc. into something like Indeco, where the coin is actually going to equate to something that is more tangible,” said Bruemmer, who now sits on Indeco’s board.
Earlier this month the company completed a $100,000 presale, as part of a broader ICO governed by Reg A+ that could eventually see the firm raising $50 million.
“If it works … you will expand the amount of solar energy being produced by bringing together groups of people who can invest small amounts, not huge amounts, and then aggregate those small amounts and build systems that can then sell energy either to a utility or to a customer,” Bruemmer said.
Although APL was originally designed to house what are called “series LLCs,” each with its own token, due to tax considerations the final structure of the subsidiaries could end up shifting to C Corps, which can offer unlimited stocks.
Investor resistance
If all that structuring doesn’t sound complicated enough, Indeco’s backstory is equally, if not more, complex.
Prior to founding APL and Indeco, Levine founded Geostellar, a solar power startup like Indeco, except without the blockchain.
By 2016, Geostellar was generating $3.6 million in annual revenue and had raised $27 million in venture capital, but even still, Levine was having trouble keeping the company going.
To help put the company on more solid footing, Levine says he spent about $500,000 on legal fees, accounting fees and more last year, in an effort to raise $40 million in an ICO governed under Reg A+.
But the company’s secured creditors pushed back, Levine said.
“They could block us from doing almost anything,” he said. “And they were sending me cease-and-desist letters on the ICO, claiming they had to consent as our secured creditors.”
Levine was able to sidestep Geostellar’s creditors’ concerns by offering a Simple Agreement for Future Equity (SAFE) on the equity crowdfunding site Republic (which recently began managing token sales).
As part of the crowdfunding campaign, the company offered to those investors cryptocurrency called “zydeco,” among other gifts including a “shoutout” on Facebook and a solar-powered happy hour.
Levine raised $325,000 during that promotion.
“The secured creditors and investors were challenging my authority to even offer free tokens, and generally criticizing everything I did,” Levine said, adding, “Of course it turned out to be a huge success.”
Now Geostellar will be Indeco’s first customer, Levine told CoinDesk. Which is one more client than most blockchain startups can boast.
Then again, a struggling company with the same founder is not exactly an ideal source of revenue. Bruemmer, who chairs the conflict and audit committees of APL’s board of directors, would not comment on Geostellar’s history of financial struggles.
But Levine said having the legal veteran on board will help Indeco navigate such complexities, telling CoinDesk:
“Things were going to get weird, and we needed someone brilliant, unflappable, experienced and credible.”
Photo courtesy of David Levine (shown left) with Russell Bruemmer