Open Letter to the Tezos Founders
This Greek tragedy is a gift that keeps giving. A new announcement from the founders of Tezos, Kathleen and Arthur Breitman, seeks to undermine the original Tezos foundation headed by entrepreneur Johann Gevers by making a second Swiss foundation and claiming this new foundation as the legitimate one.
As a reminder, the original Tezos foundation is wealthy. How wealthy? Probably to the tune of $1B in BTC and ETH. It reported selling $10M per week to liquidate the cryptocurrencies it holds. The original foundation was initially created by the Breitman couple in Zug Switzerland to raise capital for the Tezos blockchain technology, owned by closely held Dynamic Ledger Solutions. After a hugely successful ICO, the foundation was supposed to pay them a lot of money. How much? 8% of the cryptocurrency investments and 10% of all the Tezos coins available.
In a classic Greek tragic scene unexpected by the founders, their relationship with the foundation and Johann Gevers experienced a complete meltdown. The Tezos foundation did not pay them their bounty, probably because the foundation realized it was illegal. The fallout, of course, was a very public dispute. A plaintiff attorney filed class action lawsuits in San Francisco court claiming securities fraud, and the conflict kept getting better.
This latest announcement is a new chapter of the dispute. The second foundation hopes to raise capital again from unsuspecting investors, promising this time to make sure the capital will fund the development of the Tezos blockchain. What is hard to understand is why Tezos hasn’tlearned to use regulation to their advantage. Why are they still trying to circumvent the SEC? It just does not make any sense.
Being U.S. citizens, the Breitmans have at their disposal the best legal system in the world. Instead of wasting time in Switzerland with Swiss laws and a justice system that is very slow, they should opt in to the U.S. system. They should start all over and offer a regulated ICO directly from DLS.
Here is our open letter proposal to the Breitmans for a much better solution and outcome:
Dear Dynamic Ledger Solutions (DLS) founders and shareholders:
It has come to my attention that you have created a new Swiss foundation with the hope to raise capital in a new ICO and use that capital to fund the development of the Tezos blockchain. I want to recommend the following regulated structure, which will accomplish all of your goals and keep you out of trouble with both the regulators and angry investors:
- Raise the money directly from DLS and not from a foundation. The board of directors will act as the trustees of the Tezos project. They can be replaced if they fail to act in the best interest of DLS. They can also replace the DLS management if they fail to perform.
- Offer a Regulation Crowdfunding and Regulation D 506(c) pre-sale for investors with a $5M cap. You can accept unaccredited investors for $1.07M and the rest with accredited investors. Use a RATE, which is a Real Agreement for Tokens and Equity. Offer equity tokens in DLS and dropship Tezos tokens to investors. This way the $5M is sold 100% as equity and is non-taxable. Say goodbye to the Cayman Islands and exotic structures. These new tokens are also restricted to a 1 year trading lock.
- Offer a Regulation A+ and Regulation D 506(c) general sale to raise up to $200M. Again, use a RATE to issue the equity tokens and Tezos tokens. The Reg A+ tokens can be sold to tens of thousands of unaccredited investors for $50M, and these tokens do not have any trading restrictions as long as they are sold by a broker-dealer’s alternative marketplace or dark pool. The other $150M can be raised through accredited investors with Regulation D 506(C). Reg D tokens have a 1 year trading restriction, so offer them at a discount with a higher minimum investment.
- Use a registered transfer agent, so you can track all of the equity tokens you have issued and replace them in case the investors are hacked. The transfer agent holds the records of each investor.
I know this is a rude awakening for crypto anarchists, but this is the right ICO structure for your investors and the company. It is also a way to avoid expensive and time-consuming lawsuits and stressful subpoenas from regulators. I think Tezos is an important technology, and it needs your leadership to become successful.
All the best, Howard Marks
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