Exclusive Q&A With RealtyMogul.com General Counsel Ryan Sakamoto
Despite (or, perhaps, because of) its massive success and continuous evolution, real estate crowdfunding is in an awkward spot when it comes to regulations and compliance. As a newer format with a lot to prove, regulators and lawmakers are still trying to figure out all the little details of crowdfunding platforms in order to prevent fraud. So a top-tier crowdfunding platform like Bisnow partner RealtyMogul.com needs to make sure it's up-to-date with all things legal and regulatory. That's why it hired general counsel Ryan Sakamoto—who has more than 10 years of experience as general counsel in the financial services and technology arenas—to protect its clients on all levels and ensure it's in compliance. We sat down with Ryan to discuss the unique regulations a crowdfunding platform faces and if these regulations affect crowdfundings' main selling point—accessibility.
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Bisnow: During your time at Wedbush and Madison Tyler Holdings, what were some of the regulations you had to wrestle with? How did your times at these companies prepare you to deal with regulations at RealtyMogul.com?
Ryan: All of these companies are engaged in the financial services arena, so the general securities regulatory overlay is broadly the same—'33 Act, '34 Act, Investment Advisers' Act, FINRA rules, etc. But at the same time, each of the companies operates in its own corner of that world. As algorithmic traders and market makers, the Madison Tyler companies were primarily regulated as—and concerned about structural issues facing—participants in the electronically traded securities and commodities markets. The Wedbush companies are diversified into several sub-industries, interacting with a host of broker-dealer, registered investment adviser, private investment fund and banking regulations, and of course Dodd-Frank had a significant impact on several parts of that business. RealtyMogul.com is something of a blend of each, combining elements of traditional broker-dealer and private offering elements with a technology overlay and emerging areas of law and regulation.
As far as preparation, it’s certainly been helpful that my past experience has given me familiarity with securities laws, broker-dealer rules and general regulatory processes. But perhaps more importantly, I've had an opportunity to see some of what works and what doesn't, and to develop an opinion as to the type of market participant with which I’d want to be associated. It was of critical importance to me that any firm I join be guided by strong ethical principles and a culture of compliance, and I’ve been very happy with what I’ve encountered here.
Bisnow: You said RealtyMogul.com's "disruptive business plan, relentless energy and rapid growth in an emerging and competitive industry" impressed you, but is this what attracted you to the company?
Ryan: Those were certainly significant contributing factors. But what really made my decision was the opportunity to make a difference—both in terms of my individual contribution to the company and as part of an organization changing the dynamics of an established industry. Prior to joining the company, I had an opportunity to speak with Jilliene and others here, and I was extremely impressed by the smart, driven team, the palpable energy in this office, and the urgency to create something meaningful. This is a place where people dream big and work tirelessly to make those dreams a reality.
Bisnow: Where are the biggest barriers investors normally have to face when investing in a property? Does crowdfunding make these regulations more manageable?
Ryan: I think the most significant barriers facing investors who are interested in diversifying their holdings into real estate aren't actually regulatory in nature. Rather, it’s a matter of practical access. Unless you happen to be ultra-wealthy or very highly connected (or both), you generally don't have exposure to quality real estate investment opportunities, let alone in quantity and at investment levels that make sense for an individual investor. With a platform like RealtyMogul.com, accredited investors now have access and can participate in one or more offerings and do so in a manner that allows for diversification—investing not only in individually selected geographies, property types and structures, but in specific projects of their choosing.
Bisnow: Does crowdfunding have unique regulations investors are often unaware of? How can they work around/through these regulations?
Ryan: It’s not so much that crowdfunding has unique regulations, but rather it's an issue of application. When you have decades-old rules written with one framework in mind being applied in an environment dramatically altered by technology, there's a potential for ambiguity. And when you add in the unique structure that is crowdfunding, regulatory compliance can be a time-consuming and expensive challenge. Now, for the most part, the regulatory burdens are borne to a much greater extent by the platforms, issuers and those offering and selling securities than by the investors. But that doesn't mean investors don't need to pay attention to regulation. If I'm an investor, I'm paying very close attention, actually, to which of my potential counterparties are making the effort to be good corporate citizens and which are playing fast and loose. Aside from the direct benefits of good regulatory compliance and the transparency and fairness that entails, it seems to me there is likely to be a positive correlation between the firms who make the investment in compliance and those who protect investors in other ways, be it underwriting, deal negotiating, asset management, investor communications or otherwise.
Bisnow: In addition, crowdfunding is such a new platform and the regulations are changing all the time. What regulatory changes do you expect to occur in the future and how are you and RealtyMogul planning on dealing with these changes to provide an accessible service to its clients?
Ryan: The past decade or so has been marked by some pretty sweeping regulatory changes—both in terms of how the rules are written and how they're enforced—and I'm not sure it's going to be slowing down anytime soon. In fact, with the pace of innovation still accelerating, it's probably unavoidable that regulations will have to keep changing to try to keep up. The thing is, while it's no doubt a challenge for a market participant to stay up to date with all of the changes and continually dealing with ambiguities that crop up, I think it's actually a positive and an opportunity for companies like ours in a number of ways. It's in the interest of firms in our space to have the regulations catch up with technology, as it provides clearer guidance, less uncertainty and better accomplishes the goals of regulation—more orderly, transparent and liquid markets. This creates an environment in which investors can and should feel comfortable transacting. Moreover, those firms who take on the challenge of meeting regulatory expectations should reap rewards in earning the confidence of investors and other market participants as a trustworthy counterparty.
Bisnow: What do you feel sets you apart as a counsel?
Ryan: I like to think of myself as a pragmatic lawyer—one who will provide direct and actionable legal advice in the context of business realities and objectives. Over the years, I've had the good fortune to work closely with a wide variety of individuals in many different disciplines within the firms where I've worked, and through that experience, I have learned a great deal about working and communicating in cross-functional teams. I think we all have a lot to learn from one another, and it’s a missed opportunity for those in more isolated legal teams or roles, as well as for their companies. Knowing the law is essential, but it isn't sufficient, for an attorney to maximize value within a business organization.
Bisnow: What would you say to a client when they see all the regulations put on crowdfunding? How would you convince them crowdfunding is still accessible and maybe even more accessible than traditional investing?
Ryan: I don't think it would be hard to explain to an investor that crowdfunding is accessible. That, to me, seems intuitive. The part that requires more educating, I'd think, would be to get an investor comfortable that crowdfunding is substantive and sustainable—that it's here to stay and a trustworthy way to invest hard-earned money. And here is a place where more detailed guidance from regulators and increased focus from within the industry could help us to deliver that message. We operate in the same regulatory system, utilize many of the same exemptions and interpretations, and are subject to the same level of oversight as more traditional and established market participants. I think the deeper businesses like ours are woven into the fabric of the financial sector and the better the public at large comes to understand the regulated nature of the business (along with the benefits that come from the application of technology and disintermediation), the greater the prospects for success for firms like RealtyMogul.com.