On Fraud and Financial Gain: The Legalities and Risks of Crypto and RSUs

Casey Fenton


February 8, 2024

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Have you ever considered the risks and rewards of using cryptocurrency for equity compensation? As someone steering a company through the dynamic world of finance, you're no stranger to weighing potential against prudence.

The crypto realm, with all its highs and lows, offers an exciting but sometimes precarious frontier for equity. The fall of FTX, intertwined with Sam Bankman-Fried's saga, serves as a sobering reminder of crypto's volatile nature.

Meanwhile, the more conventional path of Restricted Stock Units (RSUs) provides a steadier course, underpinned by clear regulatory frameworks. How do these two vastly different approaches to equity compensation stack up, especially when it comes to legalities and fraud protection?

The Crypto Conundrum: High Reward, High Risk

In the bustling marketplace of talent, offering equity in the form of cryptocurrency can be an exciting way to stand out. It's like extending a golden ticket to employees—a stake in the future of finance that's as innovative as it is promising.

The Magnetism of Crypto Compensation

The thrill of cryptocurrency isn't just in its value—it's in the heartbeat of innovation it represents.

Picture being part of a movement that could redefine wealth, where your benefits package includes a stake in a digital frontier teeming with possibility. It's a bold blend of risk and reward, attracting visionaries eager to pioneer the financial landscapes of tomorrow.

By weaving crypto into equity offerings, employers are not just offering a slice of the pie—they're inviting you to the table where the future of currency is being served.

Volatility and Valuation: A Double-Edged Sword

Yet, the glitter of crypto comes with its storms.

The value of these digital coins can soar to dizzying heights only to plummet the next moment. The FTX saga is our real-life drama—a reminder that today's crypto jackpot can quickly become tomorrow's cautionary tale, impacting both employee morale and financial stability.

Regulatory Roulette and The FTX Fallout

Now, anchoring your company's compensation strategy in crypto is a bold move. Without the clear guidelines that govern traditional stocks, navigating crypto's legal terrain can feel like a high-stakes game of chance where every decision can have unforeseen consequences.

FTX's story is more than a corporate soap opera. It's a practical lesson in what happens when the exciting world of crypto collides with the reality of business risk. It’s a tale that urges caution, highlights the need for a strategy, and serves as a real-world example for companies to learn from—especially those flirting with the idea of crypto-based compensation.

The Stability of Restricted Stock Units

Embarking on the equity compensation journey, the reliable steadiness of Restricted Stock Units (RSUs) can offer a welcome sense of security. Think of it as selecting a clear, calm path for navigating financial seas.

The Tried-and-True Approach to Equity

RSUs are the corporate world's solid handshake. They're an agreement backed by the company's stock performance, yet they don't come with the same risks as owning actual stocks right away.

Think of them as a promise of stock once certain conditions are met—like staying with the company for a set period. For example, a tech giant like Apple often provides RSUs that vest over a few years, ensuring their talents stay and contribute to the company's growth.

The Legal Framework Surrounding RSUs

What stands behind RSUs is a robust legal framework, which spells out everything in black and white. The regulations that govern them are well-established, meaning fewer surprises. In the US, for instance, RSUs are subject to specific tax regulations and SEC rules, offering a predictable path that's been well-trodden by companies of all sizes.

Comparing RSUs to the dynamic world of crypto is like comparing a savings bond to a lottery ticket. With RSUs, you might not wake up to a jackpot, but you also won't find the rug pulled out from under you. They grow in value alongside the company's success, which may not be as rapid as a crypto surge but tends to be more dependable.

Ultimately, it's the choice between steady growth and a roller-coaster ride.

Employer Considerations for Equity Planning

When it comes to planning equity compensation, it's essential to balance excitement and stability. While cryptocurrency can be an enticing offer to make to potential hires, RSUs provide a sense of security and a tangible connection to the company's success. They act as a cornerstone, often favored by those who appreciate a solid investment in their future without the stomach-churning ups and downs of the crypto market.

Moving forward, understanding the interplay between these two very different forms of equity compensation is key.

Navigating the Regulatory Maze of Cryptocurrency

Steering through the complexities of cryptocurrency regulation is key to your company's growth trajectory. This terrain is ever-changing, offering a labyrinth of critical factors for businesses incorporating crypto into their equity plans.

The Current State of Crypto Regulation

The regulatory framework for cryptocurrency is a mosaic of global perspectives and policies, with some countries embracing it and others erecting barriers.

In the United States, the SEC has not yet put forth a comprehensive set of rules for crypto, which means navigating a mix of state and federal guidelines that can often be contradictory. For example, while the SEC has been known to treat certain cryptocurrencies as securities, it hasn't provided a clear rulebook, which leaves businesses guessing about compliance.

Comparing Securities Law and Crypto Policies

In contrast to the clear-cut regulations surrounding securities like RSUs, the ambiguity in crypto policies stands out.

Securities are governed by well-defined laws such as the Sarbanes-Oxley Act, which establishes rigorous standards for all U.S. public company boards, public accounting firms, and management. On the other hand, crypto often operates in a legal gray area, with no such comprehensive legislation to guide businesses, which can expose them to unforeseen legal risks.

Future-Proofing Your Equity Compensation Strategy

For those at the vanguard of equity compensation, it's not just about navigating current regulations, but also anticipating changes on the horizon.

Wise employers look to structure their offerings in ways that are flexible and adaptable to potential legal shifts. Adopting a proactive stance, for instance, some businesses are working closely with legal experts to ensure their crypto-based equity compensation can withstand regulatory tides.

Keeping abreast of the fluid world of crypto regulation is paramount. With regulations evolving continually, paying attention to updates from regulatory bodies, engaging in industry forums, and analyzing landmark events are all part of due diligence. The FTX collapse, for instance, serves as a stark reminder of the importance of regulatory insight and preparedness in safeguarding against similar fiascos.

Armed with this knowledge, you can better prepare for the journey ahead in the realm of equity compensation. The key takeaway here is vigilance and adaptability in the face of regulatory uncertainties.

Practical Considerations for Employers Offering Crypto Equity

When offering cryptocurrency as part of equity compensation, employers confront distinct challenges. It’s essential to steer these waters deftly, balancing stability with strict compliance.

Assessing the Impact of Market Volatility

When considering crypto-based equity, it's crucial to evaluate how the wild swings of the crypto market could affect your compensation framework and the financial well-being of your team. The volatility of crypto markets can be a rollercoaster, making it imperative to understand and communicate the potential for sudden shifts in value.

Take Bitcoin, for instance, which has seen its value halve and double within the space of months. This kind of fluctuation can have significant implications for compensation packages pegged to such assets.

Understanding Tax Implications

The tax treatment of cryptocurrency is a complex puzzle, with pieces that vary by jurisdiction. Employers must stay informed on tax laws as they pertain to crypto, which can affect both the company's bottom line and the employees' tax obligations.

For example, in many regions, cryptocurrency is treated as property for tax purposes, which means every transaction may be a taxable event, adding layers of complexity for both parties.

Educating Employees on Crypto Equity

It’s not enough to offer crypto equity; it’s also important to ensure that employees understand what they're getting into.

Providing education on crypto helps employees make informed decisions about their compensation. Whether it's understanding market trends or knowing the ins and outs of digital wallets, a well-informed employee is better positioned to navigate the complexities of crypto compensation.

As you contemplate adding crypto into your equity compensation mix, consider these best practices:

  1. Conduct comprehensive risk assessments to understand the full scope of potential challenges.
  2. Communicate transparently with your team about the inherent risks and the regulatory landscape.
  3. Stay compliant with the legal requirements in each country where your employees reside.
  4. Offer a diversified equity compensation portfolio to hedge against crypto's volatility.
  5. Remain up-to-date with the latest trends and legal developments in the world of cryptocurrency.

These steps are your safeguard in a domain where uncertainty is the only certainty. By adhering to these practices, you can offer a cutting-edge compensation package while minimizing potential pitfalls.

Wrapping Things Up

In equity compensation, while cryptocurrencies sparkle with potential, RSUs deliver a reliable promise.

The volatility of crypto, highlighted by events like the FTX collapse, carries a cautionary tale of risk alongside its allure. RSUs, in contrast, stand as the bedrock of stability, their value underpinned by a solid legal framework.

Employers weighing these options face a choice between the seductive yet unpredictable nature of crypto and the enduring security of RSUs. In this decision lies the reflection of a company’s ethos and its commitment to employee welfare.

Opting for RSUs often signals a preference for long-term assurance over the rollercoaster ride of cryptocurrency markets. It’s about prioritizing sustainable growth and providing a foundation of trust for your workforce.

If your strategy leans towards building lasting value and offering your team a secure stake in the company's future, RSUs merit a closer look.

Want to know more about RSUs and how you can leverage them for your success? Drop us a message and let’s talk!

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Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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