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The Securities and Exchange Commission yesterday settled charges that Rally, a fractionalized car and memorabilia investment startup, had been operating as an unregistered exchange.

Why it matters: The SEC's dive into whether fractionalized NFT are securities has been about more than just crypto,  Lucinda writes.

Details: RSE Markets, operator of Rally, agreed to "cease and desist from committing or causing any violations and any future violations" and to pay a $350,000 civil penalty.

Specifically, the SEC homed in on secondaries trading on the platform, along with the fact that in marketing materials Rally compared itself to stock exchanges. It did not appear to take issue with the initial sales.

Rally does have filings with the SEC to sell initial assets under Tier II of Regulation A.

What they're saying: "It's a trading system that we no longer use," chief product officer Rob Petrozzo said in a phone call, adding that the system was retired in 2021. "Once the regulatory guidance became more clear, we were already in the process of modernizing the platform."

In other words, Rally is not expecting the cease-and-desist order to have a significant impact on its current operations. All its transactions now run through an external broker dealer.

Context: During the low interest rate period, startups marketing alternative investments in luxury cars, artwork, collectibles and real estate flourished. 

Masterworks for instance raised $110 million in Series A funding at a valuation of over $1 billion in 2021. 

Rally gathered $30 million in Series B funding that May, and NFT fractionalization platform Tessera snapped up $20 million last year.

Of note: Masterworks, too, sells fractions of artwork under Regulation A. It is not a registered exchange.

Bottom line: Fintech startups now must ensure their operations are completely buttoned up. The SEC is having an extremely busy 2023, continuing with today's indictment of Celsius founder Alex Mashinsky.

Fractionalized car trading startup Rally settles with SEC

1 big thing: SEC's alternative crackdown

Illustration of dollar bill as a medieval stockade

Trunk Tools, a startup providing technology to help construction workers get paid faster, raised $9.9 million in seed funding, the company tells Ryan exclusively.

Why it's the BFD: By speeding up worker pay and aligning incentives with employers, the startup believes it can boost productivity and safety on construction sites.

Details: The seed financing was led by Eric Schmidt's VC firm Innovation Endeavors, with participation from Fifth Wall, Foundation Capital and several others.

How it works: Trunk Tools' service grants workers access to earned wages and bonuses daily via debit cards, rather than making them wait weeks for payroll or paper checks.

Goals are sent via SMS, enabling workers to view tasks, check their balances, and review transactions directly from their phones without having to download additional apps or software.

The company makes money by charging a SaaS fee to construction firms, as well as through interchange fees.

Context: Prior to founding Trunk Tools, CEO Sarah Buchner spent 19 years in construction and saw firsthand the labor and safety issues that construction industry employers grapple with.

"What we learned ... was that the incentives are not aligned," Buchner says. "So we created an incentive software that tells workers, 'If you outperform your daily task, you actually get to make more money.'"

Between the lines: Trunk Tools seeks to address the skilled labor shortage by both speeding up and boosting potential payouts, thereby making construction companies more competitive as employers.

"A third of blue-collar workers in the United States are unbanked, so we are kind of banking the unbanked with our first product," Buchner says.

What's next: With the funding, Trunk Tools plans to expand its fintech offerings, potentially offering short-term lending, credit cards and additional benefits such as 401(k) access.

2. The BFD: Fintech for construction pay

Illustration of a hundred dollar bill with Ben Franklin wearing a construction hat.

Swile aims for the travel and expense market (TechCrunch)

French employee benefits company Swile says it expects to turn EBITDA profitable next quarter, after generating €138 million in revenue and €72 million in losses last year, and is preparing to enter the corporate travel booking and expense management market.

Stablecoin issuer Circle has laid off an undisclosed number of employees, saying it is focusing on its core business activities. The company described it as a "marginal reduction in headcount."

Lawyers paid Clarence Thomas aide via Venmo (The Guardian)

Several lawyers who have had business before the Supreme Court paid  Thomas aide Rajan Vasisht via Venmo transactions. Previously public, Vasisht's Venmo account showed seven payments in late 2019 listed as “Christmas party,” “Thomas Christmas Party,” “CT Christmas Party” or “CT Xmas party."

Public.com makes its international debut in the U.K. (Bloomberg)

The New York-headquartered firm will enable British retail investors to trade more than 5,000 US stocks, marking the investing platform's first expansion outside its home market.

3. Credit score

• Silo Technologies, a San Francisco-based food supply chain payments and data provider, raised $32m in Series C funding. Koch Disruptive Technologies led and was joined by Andreessen Horowitz, Haystack Capital, Tribe Capital, Collate Capital and Moore Capital. https://axios.link/43mZVKn

• MerQube, a San Francisco-based index-investing tech maker, raised $22m in Series B funding led by Intel Capital with participation from Allianz Life Ventures, Citi, J.P. Morgan, Laurion Capital Management and UBS. merqube.com

• Mattilda, a Mexico City–based company collections and payments company private schools, raised $19m in Series A funding. GSV Ventures led and was joined by FinTech Collective. https://axios.link/3JXWFOG

• Efficient Capital Labs, a financing firm targeting B2B SaaS companies in Southeast Asia, raised $7m in funding led by QED Investors. Other investors include 645 Ventures, The Fund, Lorimer Ventures, Riverside Ventures and Generalist. https://axios.link/44kWLrS

• CapStack, an operating system for banks built by Pipe co-founder Michal Cieplinski, raised $6m. Fin Capital led and was joined by Alloy Labs, Cambrian Ventures, Cowboy Ventures, Future Perfect Ventures, Gaingels, Selah Ventures, Uncorrelated Ventures and Valor Equity Partners. https://axios.link/43mDFQX

• 73 Strings, a Paris-based provider of private capital valuation and portfolio monitoring, raised an undisclosed amount of Series A funding. Blackstone and Fidelity International Strategic Ventures co-led and were joined by Broadhaven Ventures. www.73strings.com

• Cornerstone Advisors acquired BankSmart, a consulting firm specializing in bank operations and payments. https://axios.link/44JeHfw

• FactSet (NYSE: FDS) acquired Idaciti, a New York-based data structuring and collection company. Forward VC and Signal Peak Ventures backed Idaciti. https://axios.link/3rvCuBi

• REA Group (ASX: REA) acquired CampaignAgent, an Australia-based property vendor funding company. https://axios.link/44qP97s

4. Deals!

• Jack Gorman is joining crypto investor Variant as a data scientist on the investment team. https://axios.link/3riERr6

• Granger Whitelaw has joined fintech and consumer data analytics firm GoLogiq as CEO. He succeeds interim CEO Brent Suen, who will remain chairman of the board. https://axios.link/3PPCpTj

5. It's personnel

Situational awareness: Federal authorities this morning arrested Alex Mashinsky, founder and former CEO of crypto lender Celsius.

👀 What we're watching: Keep an eye on second-quarter bank earnings, which will offer a glimpse into the effects of Silicon Valley Bank's failure. JPMorgan, Wells Fargo and Citigroup are expected to report on tomorrow.

@Lucinda is trying to understand Threads.

@Ryan refuses to create a Threads account.

Thanks to George Moriarty and Rob Reinalda for today's edits.

And thanks to you for reading. Please tell your fintech friends about this newsletter. They can sign up here.

July 13, 2023

1 big thing: SEC's alternative crackdown