Products November 22, 2023

Product Partnerships – 11/22/23

Luma Financial Technologies, RetireOne enhance RIA access; IFC, T. Rowe Price create 1st blue bond strategy; Alto, Farmland LP announce partnership.

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Luma Financial Technologies Partners With RetireOne to Enhance RIA Access

Luma Financial Technologies LLC, an alternative investment platform, announced a partnership with RetireOne Inc., a platform for fee-based insurance solutions.

Luma’s platform will now integrate RetireOne’s fiduciary marketplace of commission-free annuity and insurance solutions, providing non-insurance licensed registered investment advisers with a way to manage annuity offerings for their clients.

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“There continues to be strong RIA demand for annuities and it is our mission to continue increasing availability and transparency of these products so financial professionals are best equipped to serve their clients’ insurance solution needs,” Brady Beals, director of investment solutions at Luma Financial Technologies, said in a statement.

The partnership combines Luma’s annuity product evaluation tools with accessibility to RetireOne’s advisory solutions. Luma’s platform is equipped with various resources, allowing RIAs and fee-based advisers to offer clients access to suitable annuity solutions as part of their holistic portfolios.

IFC, T. Rowe Price to Create 1st Blue Bond Strategy

IFC—the International Finance Corp., a member of the World Bank Group—and T. Rowe Price announced plans to create a global blue bond strategy to increase access to finance for ocean-based environmental projects in emerging markets and help improve market standards for the nascent blue bond market.

The proposed T. Rowe Price Emerging Markets Blue Economy Bond Strategy is expected to mobilize international capital from eligible investors to support blue-labeled investments in global emerging markets through blue bonds issued by financial institutions and real sector companies. 

“The investor capital deployed into blue bonds through T. Rowe Price Blue will make a vital contribution to furthering a blue economy,” Makhtar Diop, the IFC’s managing director, said in a statement. 

First offered as bonds in 2018, ‘blue’ investments seek to provide competitive returns while supporting the health of the world’s oceans and water resources, which are vital for sustainable global development, especially in the face of climate change, overfishing and pollution, the firms wrote in the announcement. According to the statement, momentum is growing for blue finance, with interest from both investors and issuers in blue bonds and loans that fund ocean-friendly projects and safeguard clean water resources.

Alto, Farmland LP Announce Partnership to Broaden Access to Alternative Investments

Alto Solutions Inc., a platform that enables individuals to invest in alternative assets using their retirement funds, announced an expanded partnership with Farmland LP, one of the largest fund managers specializing in organic farmland.

Farmland LP is making its Vital Farmland Fund III available on the Alto Marketplace, allowing accredited investors to invest in a real asset-managed farmland fund.

“We’re pleased to partner with Farmland LP to further enhance our range of fund offerings in unique and specialized segments of alternative investments, catering to the needs of accredited investors,” Scott Harrigan, CEO of Alto Securities, said in a statement. “This partnership will offer accredited investors an opportunity to invest in a fund that is typically not accessible to retail investors, diversifying their portfolios into a largely uncorrelated asset class to the public markets.”

Vital Farmland Fund III, a 506(c) Regulation D offering, is focused on acquiring and converting conventional, chemical-based farms through conversion to organic and regenerative agriculture. The fund seeks to generate returns for investors while promoting sustainability.

Farmland LP, as a farmland investment management firm, has successfully acquired and managed more than 16,000 acres of farmland in Northern California, Oregon and Washington, amassing a portfolio exceeding $275 million in farmland assets over the last 14 years, according to the company.

Compliance November 22, 2023

SEC Charges Against Kraken Identify Specific Tokens as Securities

The complaint is another sign to 401(k) plan fiduciaries to take care with digital asset availability in plans, according to attorneys.

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The Securities and Exchange Commission identified 11 crypto tokens as securities in a complaint brought Monday against crypto trading platform Kraken.

The lawsuit brought by the SEC in U.S. District Court for the Northern District of California, San Francisco Division, alleges that Payward Inc. and Payward Ventures Inc., the registered companies behind Kraken, have been operating Kraken as an unregistered securities exchange since at least September 2018. The SEC refers to the tokens traded on Kraken as “crypto asset securities” in the corresponding press release relaying the charges.

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The complaint alleges further that Kraken comingled its assets with that of its customers and also comingled the functions of exchange, broker, dealer and clearing agency in its client services. Kraken comingled a total of $33 billion in cryptocurrency and $5 billion in cash with its own assets, the SEC alleges.

The “comingling of functions” is a common criticism SEC Chairman Gary Gensler has made against actors in the crypto industry.

Plan Fiduciaries, Take Note

401(k) plan fiduciaries should take note of the complaint when it comes to offering cryptocurrency to plan participants, Wagner Law Group partner Kimberly Shaw Elliott wrote in emailed commentary.

“The SEC’s new enforcement activity should be a clear warning to not only unregistered crypto providers and the advisers who recommend crypto investments, but also to retirement plan fiduciaries who approve those investments,” she wrote. “Is it prudent to place faith in the seller or holder of crypto who does not go through the rigors of registration? While some registered broker/dealers are now offering crypto to 401(k) plans through registered exchange-traded funds, a fiduciary must still weigh the risk of loss against the opportunity for gain from these highly volatile investments.”

Shaw Elliott noted a 2022 Department of Labor bulletin warning about the risks of allowing participants to invest in cryptocurrency. The regulator successfully received the dismissal of a lawsuit filed by recordkeeper ForUsAll Inc., which had sought damages for the bulletin’s chilling effect on providing cryptocurrency through the self-service brokerage window.

Philip Moustakis, a partner in Seward & Kissel and a former attorney with the SEC’s enforcement division, says the “threshold question is whether we are dealing with securities” in this case. Because if the tokens in question are not securities, then the SEC cannot bring the other allegations against them.

At various points in the complaint, the SEC asserts that different tokens were “sold as investment contracts,” a key component in determining that an asset is a security. The SEC also notes that the 11 tokens in question were all previously brought as examples of securities in enforcement actions taken against Binance and Coinbase. The SEC stated that it needs “only [to] establish that Kraken has engaged in regulated activities relating to a single crypto asset security.”

The 11 tokens trade under the symbols ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG and SOL.

The Howey Test

The SEC alleges in the complaint that: “Based on the public statements of their respective issuers and promoters—at least some of which were rebroadcast by Kraken itself on the Kraken Trading Platform—a reasonable investor would have understood the offer and sale of each of the Kraken-Traded Securities as offers and sales of investment contracts.”

Moustakis says that a fair attorney “could write both sides of the brief” about the tokens’ status, and this case “brings no further clarity” on which tokens are securities.

Though “the Howey Test is fairly clear,” Moustakis says, referring to the legal test for determining if an asset is a security, it can be difficult to apply to crypto because of the nature of blockchain technology. With crypto, “a security one day can be a non-security the next.”

Whether or not the tokens satisfy the Howey Test is the key question, because if they do not, then the other allegations fall outside the SEC’s jurisdiction, the attorney says. Comingling assets is “a no-no in the securities world,” Moustakis says, while also questioning whether cryptocurrency is the securities world.

On the comingling of functions, Moustakis says “federal securities laws break out the functions” of broker, dealer, exchange and clearing agency “to create a series of checks and balances” to protect investors. However, if the tokens are found to not be securities, then this “is an unregulated space.”

Gensler has repeatedly stated that the securities laws and Howey Test are clear enough and that further regulation or other clarification is not needed to bring enforcement actions against the crypto industry.

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