Navigating the Regulatory Landscape: A Must-Know for Digital Securities

Welcome back to Module 1, Episode 2, The Regulatory Roadmap. SEC, Reg D, Reg S, and Reg CF. Well, welcome to Old Man New Money. I'm Douglas Borthwick, and today we're talking about everyone's favorite topic, regulation. I can hear you groaning already. Douglas, regulation's boring. Douglas, just tell me what to buy. Well, here's the thing. If you don't understand the regulatory framework for digital securities, you're going to lose money. Not might, will. When we were raising capital for INX, we had to navigate this maze of regulations. We spent millions on legal fees.

We went through two years of back and forth with the SEC, and you know what? It was worth it because we did it right. I've watched other companies skip these steps. I've watched them raise millions only to get shut down by the SEC. I've watched investors lose everything because they bought unregistered securities with no legal protections. So yeah, regulation might be boring, but being broke is worse. Now, here's your 30 second version. There are three main regulatory exemptions for selling securities in the U.S. without a full IPO. Reg D lets you sell to accredited investors. Reg S lets you sell to international investors.

Reg CF lets you crowdfund from a regular people up to $5 million, and each has different rules, different limits, and different compliance requirements. Get it wrong, and the SEC will shut you down. Now, we're in this weird moment where digital securities are exploding, but the regulatory framework was written for a paper-based world. The Securities Act of 1933, and that's not a typo, 1933 still governs how these work. But here's what's changed in 2024 and 2025. The SEC has actually started providing clarity on digital securities. Not as much as we'd like, but more than we had.

Companies that understand how to navigate this framework are raising capital and building businesses. Companies that don't are getting cease and desist letters. Let's understand what we're dealing with. The Securities Act of 1933 has one basic premise. If you want to sell securities, you must either register them with the SEC or find an exemption. Registration is the full IPO process. At INX, we went through this. It's brutal. It costs millions of dollars, takes months to years, requires audited financials going back years, and involves mountains of disclosure documents. We found an F1 prospectus. The SEC came back with comment letters.

We revised. They come back again. We revised again. This went on for two years. Most companies can't or don't want to do this, so they use exemptions. Think of exemptions like this. The SEC says, "Okay, we'll let you skip the full registration process, but you have to follow these specific rules." Different exemptions have different rules. The three big exemptions for private companies are Reg D, Reg S, and Reg CF. And let me break each one down using examples I've already seen. Regulation D is the most common exemption. It comes in flavors, but the two that matter are Rule 506B and Rule 506C. Rule 506B is the classic private placement.

You can raise unlimited capital, you can sell to unlimited numbers of accredited investors, you can sell up to 35 non-accredited investors if they're sophisticated, but you can't publicly advertise the offering. You can't tweet about it, you can't put it on your website, you can only offer securities to people you have a preexisting relationship with. Rule 506C changed the game in 2013. You can publicly advertise, but you can only sell to accredited investors and you must verify their credited status. That verification requirement is key. Under 506B, investors can self-certify.

Under 506C, you need to verify with tax returns, W-2s, and CPA letters. Most digital security offerings use 506C because being able to advertise is huge. You can market on social media, run ads, host webinars, as long as you're only selling to verified accredited investors. At INX, after we completed our full registration, we also advised other companies on Reg D raises. The ones that succeeded were meticulous about verification. The ones that failed cut corners. To be an accredited investor, you need one of the following. $1 million net worth, excluding your primary residence. $200,000 annual income, or $300,000 joint for the last two years.

A Series 7, 65 or 82 license, or be a knowledgeable employee of a fund. The income and net worth thresholds haven't changed since the 1980s, which is insane. A million dollars in 1982 is not the same as a million dollars in 2025, but that's what we're working with. As of 2025, roughly 13% of U.S. households, that's one 3%, qualify as accredited investors. That's about 17 million households. It's a big market, but it's not everyone. Now, Reg S is fascinating because it's based on a simple principle. U.S. securities laws don't apply outside the U.S.

Under Reg S, you can sell securities to international investors without SEC registration, as long as a sale occurs outside the U.S. There are no directed selling efforts in the U.S., and the transaction is offshore. This is how many digital securities companies have found market product fit. They do a Reg D offering for U.S. investors and a Reg S offering for international investors, particularly in Asia. When I was at INX, we raised from 74 countries. The U.S. was important, but Asia was huge, Japan, South Korea, Singapore. These markets had retail investors who understood digital assets and wanted access to U.S. investment opportunities.

Magic Circle Technology, a company I advise, specializes in bringing Asian issuers to U.S. platforms and connecting U.S. issuers with Asian investors under Reg S. They've successfully closed multiple raises because they understand this market. But here's the catch. Reg S securities can't be resold in the U.S. for at least one year, sometimes two years, depending on the category. They're restricted securities. Now, regulation crowdfunding at Reg CF was created by the Jobs Act in 2012 and updated in 2021. This is the democratizing capital exemption. Companies can raise up to $5 million in a 12-month period.

Non-accredited investors can invest based on their income, but there are limits to protect them. You must use a registered crowdfunding platform like Republic, StartEngine, or WeFunder. Reg CF is interesting because it allows regular people to invest in startups. The challenge is the $5 million cap. If you need more capital, you need to use other exemptions. I've seen companies successfully use Reg CF to build community and raise initial capital, then move to Reg D for larger raises as a stepping stone, not an endgame for most serious companies.

And let me tell you about what we went through at INX because this is the alternative to exemptions. We decided to do a full F1 registration, not because we wanted to spend millions on lawyers and years in the process, but because we wanted to offer our tokens to everyone. Accredited and non-accredited, U.S. and international with no restrictions on resale. We fired our initial registration statement in October of 2018. The SEC came back with comment letters, pages of questions, be revised and refiled. They came back again. This happened multiple times. We finally got our registration declared effective in August of 2020.

Two years, millions in legal fees, mountains of disclosure, audited financials, risk factors that went on for pages. But you know what? We raised $85 million from over 7,000 investors. No holding periods, no transfer restrictions, freely tradable from day one. That was only possible because we did full registration. For most companies that's overkill. If you're building infrastructure that needs broad participation, it might be the right path. Here's what makes this hard. Filing the forms is the easy part. Staying compliant is the challenge. Every exemption has different requirements.

Reg D generally has no ongoing reporting unless you're already a reporting company. Reg S depends on the security and your home country. Reg CF requires annual reports to investors. Full registration requires semi-annual and annual reports like a public company. Resale restrictions may vary. Reg D securities are restricted. Generally can't resell for six to 12 months. Reg S securities can't come back to the U.S. for one to two years. Reg CF securities are restricted for one year. Fully registered securities can be freely tradable. At INX we built compliance into the technology. Our smart contracts enforced transfer restrictions automatically.

Before any transfer, the contract checked. Is this investor verified? Has the holding period expired? Are there restrictions on this token? And this is where digital securities shine. Compliance becomes programmatic, not manual. Let me talk about the mistakes I've seen because I want you to avoid them. Advertising a 506B offering? I've seen companies tweet about their private placement. Boom. You just lost your exemption. The SEC doesn't care that you didn't know the rules. Not filing Form D on time? Well, you're 15 days from the first sale. Miss it and you might lose your exemption. I've seen this happen. Ignoring state laws?

Reg D preempts state registration. But not state notice filings or anti-fraud laws. You still have to file in states where you're selling. Selling to fake accredited investors? If someone claims they're accredited but isn't? That's on you. Verify properly. Reselling restricted securities too early? Those 12 month holding periods are real. Violate them and you violated securities laws. Let me give you examples of companies that did this right. Well, INX did a full F1 registration. Two years, millions spent, but we can sell to anyone, anywhere with no restrictions. Worth it for the business model.

Securitize has helped multiple companies do Reg D and Reg S raises. They built a platform that handles the compliance automatically. Their clients include some of the biggest names in tokenization. Treasure Experience, where I serve as Chief Investment Officer, did a Reg D S raise through INX. We targeted accredited investors in the US and retail outside the US. We raised capital to fund treasure hunting expeditions and investors get a share of any treasure fund. That worked because we matched our offering structure to our audience. Here's what I think happens in the future.

The SEC will create specific guidance for digital securities, not new regulations, but clarifications on how existing regulations apply to tokenized securities. We'll see more companies use Reg A+ for digital securities. The $75 million cap is attractive and the free trade ability is valuable. International harmonization will slowly happen. The EU's MICA regulation, Asia's frameworks and US rules will start converging. That makes cross-border offerings easier. And eventually, maybe five to 10 years, we'll get updated. We'll get updated accredited investor definitions. They reflect 21st century wealth and income. What should you do right now?

If you're an investor, verify your accredited status. Get your documentation ready so you can invest in opportunities. Learn to read Form D filings. Go to Edgar, search for digital security companies. Read their filings. You'll learn what to look for. Follow SEC enforcement actions. The SEC publishes these. See what they're cracking down on and you'll understand what to avoid. Join a Reg CF platform as an investor. Even if you don't invest, see how the process works. Republic, StartEngine, WeFunder, open accounts, browse deals, learn. If you're a founder, start researching which exemptions make sense. Don't wait until you need capital.

Talk to securities lawyers now, not when you're desperate for funding. Look, I know this episode wasn't as sexy as talking about Bitcoin hitting new highs or the latest DeFi protocol, but this stuff matters. The difference between a legal digital securities offering and an illegal one isn't the technology. It's not the blockchain. It's a regulatory exemption you use and whether you follow the rules. The companies that are going to win in digital securities, aren't the ones that ignore regulation. They're the ones that embrace it, understand it and use it to their advantage.

We proved that at INX, full SEC registration, 85 million raised 7,000 investors from 74 countries. It can be done if you do it right. Next episode, we're going to walk through how digital security token offerings actually work in practice. The players involved, the process, the timeline, the costs, the real nuts and bolts. I'm Douglas Borthwick, this is Old Man New Money. If you learned something today, share this with a founder or investor who needs to hear it. Thank you. [BLANK_AUDIO]