As I sat across the conference room table from a Texas State Securities Board criminal investigator, my mind went through our business model, marketing materials, and what the end of this day was going to look like. For the sake of anonymity, I’ll call the investigator Ranger. After we moved past our greetings and we’re welcomed into the conference room, Ranger’s next statement was less than welcoming, “Gentlemen,” he said to me and my business partner, “you are not being recorded, the door behind me is not locked, and you are welcome to leave at any time. The purpose of today’s meeting is to find out if you all are the good guys or bad guys. If your stories are consistent with my investigation, then we’ll likely have no problems with you.”
Well I thought, this is about to get interesting.
Three Months Earlier...
It was a Friday, a gorgeous summer day in Dallas. Every Friday the North Texas Blockchain Alliance holds Proof of Lunch, a lunch meet-up where members discuss projects and network. Having arrived at the end of a busy week, I decided to head over and have lunch and see what folks were up to.
This particular day, I sat a table with a gentleman who discussed a mining project with plan to utilize 100% renewable energy. It was an interesting project, particularly with the looming unsustainable power demand for digital asset mining. All of us at the table shared a volley of friendly discussion centered around each of our projects. We casually finished lunch and went each to our separate ways.
A few weeks passed and I got a call to join this person, who I’ll call Edison, for a coffee. Actually, Edison asked that I join him and his business partner, I’ll call him Mr. Roarke from Fantasy Island, for a networking coffee. Edison wanted to know if I might be interested in joining their team or working together in some capacity. He emailed me the white paper, which seemed a bit light with a business model that was slightly confusing and a focus was on launching an ICO in conjunction with a utility token. Mind you, this was a time when the market was in a slide and ICO’s were dying on the vine along with utility tokens. (Which is still the case with ICOs.)
The meeting played out like the whitepaper – not that interesting and difficult to follow. Edison was very capable from a technical standpoint. However, his business partner, Mr. Roarke, was difficult from the start, particularly when asked simple questions about the business model, execution, team development, fundraising strategy, tokenomics, etc. This threw up an immediate red flag as I had encountered this personality type in a previous business. (they have vision; however, they are too inwardly focused to delegate, develop teams or execute ground strategies for growth - lived and learned.) After the meeting on a follow up call, I kindly informed Edison that I had no interest in moving forward and that was that.
Why am I telling you this backstory? Trust me, it’s relevant to how we landed in the crosshairs of a criminal investigator with the TSSB. And it’s vital that you know this, so you can “regulatory-proof yourself” and your business. (I was going to say prison-proof yourself, but I didn’t want to scare you away from this fine article.)
A month or so after the coffee meetup, I got a call from Edison and he asked to meet. He wanted to discuss the business again, Quarry Token. I kindly informed him I was too busy and just didn’t have interest. He said Mr. Roarke was no longer a business partner, nor were any of Mr. Roarke’s associates further involved.
Well now, that changes things - I thought to myself.
My next question to Edison was: “How open are you to reworking the business model?”
“I’m open,” he stated. Enough said, I agreed to meet.
From there we dissected the business, dropping the convoluted tokenomics model and other complicated land-lease elements related to partnering or developing a market with farmers/ranchers for the mining PODs. We agreed on a simpler, more executable business model with way less moving parts. The new model focused on Quarry Token building and operating a digital asset mining operation with complete application of renewable energy; company owned & operated – done! We also planned to take Edison's vertical axis wind turbine from concept to production.
The beginning of August, I drafted a new white-paper and pitch deck. The website got a fresh update too. As we moved into September, I began to assemble a team, primarily fundraising advisors and a legal advisor – someone with securities experience. Legal advice was key, as our plans had shifted toward launching a security token (STO) to provide a profit dividend to our token holders, ensuring an intrinsic value for our token beyond utility or market entropy. The STO path seemed right and responsible, especially in the wake of rampant fraud that had all but collapsed the ICO market – in my opinion.
Building a team is an art, like assembling a symphony and in all my years of running regional, national and international territories is one my favorite things to do. When each contributes from their core strength, they can deliver a fantastic result and a beautiful business harmony. First, I contacted a strong, C-Level business advisor based in the Netherlands whom I’ll call the Iron Lady. After reviewing our business model, the Iron Lady agreed to join. Others quickly came into place through referrals and networking: an attorney, I’ll call Mustang, and a couple of other fundraising/business advisors. The final advisor had contacted me previously through LinkedIn. He had messaged me off and on presenting his fundraising services and prior experience. Based on his electronic footprint, I noticed he was connected to several high-profile projects that had raised many millions if not hundreds of millions of dollars. I’ll call him Madoff.
Things were moving quickly. At around the same time, I was planning to attend a conference in Austin—ICO Emerge sponsored by Ten Capital. Wanting a more robust appearance in presenting our company, I raced to get all of our advisors added to the website, including Mustang and Madoff before heading to the event.
Mistake #1, or this might have been #2, maybe even #5. Anything done in haste rarely provides a long-term benefit. File that away for later.
At the conference I sat through several speaking sessions related to KYC, AML, and security tokens. Perfect, I thought, this is great information given our STO launch plans for the future. I had already had a few discussions with Polymath to organize a strategy in that direction. As I sat through the presentation provided by a K&L Gates attorney, I quickly realized that security tokens were a whole new landscape vs. utility tokens. Likewise, I started to conclude that I had received some bad guidance, not from Mustang but from previous blockchain “experts.” (Although, I do suppose anything goes when you’re running an STO through an offshore entity.)
Later in the day, I was able to spend some time speaking one on one with the K&L Gates attorney. This discussion was enlightening to say the least.
Afterward, I began to question our fundraising strategy and our overall plans for a future STO. Fortunately, as was discussed, we had yet to raise any funding and had plenty of time for further evaluation to recalibrate our plans.
As I was driving back to Dallas the next day, Mustang left me an urgent message. When I called her back, I was shocked to learn that she had been contacted by Ranger at the Texas State Securities Board in conjunction to Quarry Token. He was requesting a call with Mustang to discuss potential criminal issues with our project.
Upon hearing those words I was slightly bewildered - what could they possibly want with us; particularly when we had made every effort to operate transparently, organized a strategy to deliver value back to token holders and your only desire is to build an honest business. You know your heart and your genuine intentions. Yet, the person who makes the decision on whether or not to charge you doesn’t know you. Yet!
This marked the beginning of our “Houston we have a problem” moment. I hoped it wouldn’t become “Huntsville we have a problem. (For those outside of Texas, Huntsville is the city that houses the center of our fine state correctional system.)
Stay tuned for Part Two!
Some names and identifying details have been changed to protect the privacy of individuals.