Washington State Investigates PembiCoin

It has been a while since my last blog post, and much has transpired.

To recap, The Humane Society of the United States (HSUS) accused Pembient of violating the Washington Animal Trafficking Act in February. This offense allegedly arose from Pembient's presale of biofabricated horn via an Initial Coin Offering (ICO) late last year. In hopes of exonerating Pembient, I met with detectives from the Washington State Department of Fish and Wildlife (DFW) on February 28th. I thought everything was resolved, but as it turned out, I was wrong.

Fast forward to March 27th, when I received a letter from the Washington State Department of Financial Institutions (DFI). The letter expressed a concern that Pembient might have sold unregistered securities in the State of Washington. In other words, there was a new reason to doubt the legality of Pembient's ICO. For those unfamiliar with the seriousness of the situation, the letter helpfully added that the company could face "administrative, civil, and criminal sanctions." It also instructed me to provide a full accounting of the ICO by April 17th. Of course, I immediately complied.

In response, I argued that PembiCoins, the blockchain tokens on offer, should not be considered securities. More specifically, they were not designed to fund Pembient's research and development efforts, but to cover the cost of a pilot run of biofabricated horn. A PembiCoin would allow its holder to take delivery of one gram of the pilot batch in 2022, nothing more, nothing less. The ICO, then, was similar to a product crowdfunding campaign, except Pembient recorded customers' pledges on a public blockchain instead of a private database. Alternatively, it was like buying a ticket to a future event, purchasing an unbuilt condominium unit, or even pre-ordering a Tesla. I concluded by noting that such transactions were not uncommon, nor did they require registration with the DFI.

Meanwhile, I became increasingly concerned that HSUS was behind this latest inquiry. To find out, I submitted a public records request to the DFI. Much to my surprise, it revealed that the Washington State Attorney General's Office (AGO) had triggered the DFI's probe! However, a subsequent records request, this time to the AGO, returned an email containing a copy of the accusations HSUS originally sent to the DFW. Hence, my suspicion was confirmed: HSUS's influence percolated up from the DFW to the AGO on February 22nd and then down to the DFI on March 8th, resulting in two parallel investigations into Pembient - one by the DFW, detailed previously, and the other by the DFI. Even more worrisome was that the author of the aforementioned email, an assistant attorney general, had written that "prosecution of operations like this one [Pembient] will require some carefully thought‐through legal analysis." Why were the authorities trusting the assessments of HSUS, an organization that once settled a $16 million racketeering lawsuit? What if HSUS was intentionally making false and misleading statements about Pembient in contravention of Washington State law (i.e., RCW 9A.76.175)?

Putting aside those questions, I went back to work. Months passed, and Pembient labored under a cloud of uncertainty. During this time, the stigma of being investigated hampered Pembient's ability to raise capital, capital it needed to refine its prototypes and scale up production.

Things finally culminated with the DFI inviting me to an in-person interview, which I scheduled for June 28th. Naturally, I was apprehensive going into the meeting, but it was surprisingly fun. The investigators asked good questions as I took them through the mechanics of PembiCoin. Additionally, we all lamented the imprecision of the term "ICO." Almost three weeks later, on July 17th, the DFI closed its investigation, with no action being taken against Pembient. Ironically, throughout this whole ordeal, there was no evidence of any customer complaints levied against the company.

So, what is the current status of the PembiCoin ICO? It has technically ended and is in a paused state pending the activation of an account at a cryptocurrency exchange. Unfortunately, the exchange that Pembient is working with is experiencing significant delays in verifying accounts due to a backlog of applications. There is a good chance, barring further harassment, that the account will be opened and PembiCoins issued before the one-year anniversary of the completion of the ICO. If you've been waiting to receive PembiCoins, I thank you for your patience.

Humane Society Strikes at Pembient Again

[Welcome to our first blog post! We are excited to start sharing our thoughts about biofabrication with the world. Before we get to today's topic, though, we have a brief update on the PembiCoin ICO that ended October 22, 2017. We are currently waiting for our business account at a reputable cryptocurrency exchange to be activated. Once that happens, we can declare the ICO a success and issue PembiCoins. If you are an ICO participant, we thank you for your patience.]

On February 20th, I received a curious email. It was from a detective with the Washington State Department of Fish and Wildlife (DFW). He was looking to establish a point-of-contact for law enforcement at Pembient. Being CEO, I assumed the responsibility and agreed to a call on the 28th to discuss Pembient's work.

Approximately two hours before the call, I received a new message. Agents from the DFW now wanted to meet in person! Since I didn't have a conference room booked at my office, I quickly arranged to meet them at a local cafe. Did Pembient, I wondered, break the law in its quest to biofabricate, or grow, animal horn? Visions of perp walks danced in my head as I wrote down my lawyer's phone number, left everything else behind, and headed out to the meeting.

But what precipitated these events? I had a hunch that special interests were involved. Back in 2016, The Humane Society of the United States (HSUS) successfully lobbied the U.S. Fish and Wildlife Service (FWS) to deny a permit sought by the Black Rhino Genome Project, a non-commercial effort to map out a black rhinoceros' genetic code. One of the reasons HSUS cited for why the FWS should deny the permit was Pembient's advocacy of the project. HSUS wanted to stop the map from being made so that Pembient couldn't use any knowledge gleaned from it to biofabricate the horn of an endangered species.

Unfortunately, my hunch that outsiders were meddling again was correct. According to a response to a public records request, HSUS and its sister organizations, Humane Society International and Humane Society Legislative Fund, contacted the DFW about Pembient sometime after February 12th. They urged the DFW to take "immediate enforcement action" against Pembient for violations of the Washington Animal Trafficking Act. More specifically, they claimed that Pembient's PembiCoin offering, a crowdsale in which individuals could purchase cryptographic tokens exchangeable for biofabricated horn in the year 2022, was illegal.

A close look at the letter HSUS sent to the DFW reveals an astounding jump to an erroneous conclusion. That is, PembiCoin is repeatedly mischaracterized as an offer for sale of "synthetic rhinoceros horn." However, the PembiCoin offering refers exclusively to "biofabricated horn." As such, PembiCoin should be viewed as an offer for sale of horn made from the most exotic stem cell line legally allowed at the time of production. Pembient might prefer to use rhinoceros stem cells, but if that turns out to be infeasible, it could revert to using cow stem cells. The resulting Cowino™ horn, a portmanteau of "cow horn" and "rhino horn," would be a cylinder of horn with the presently unparalleled solidity and heft of rhinoceros horn, but entirely legal. Unless, of course, HSUS proposes we start regulating beef and other cow parts as wildlife products.

Besides demonstrating a complete misunderstanding of PembiCoin, the letter also brings up two old issues that I've addressed again and again and again in detail. The first is that biofabricated horn will "attract new customers, who would not have otherwise purchased rhinoceros horns, to the market." Moreover, "at least some of these new users will eventually shift their consumption to wild horns since the more expensive wild horns will confer the luxury status that the synthetic horns will not." The second is that "enforcement will be difficult because officials will not have an efficient, practical means of distinguishing between real and synthetic horns." These statements, taken together, are contradictory. If expensive horns are less likely to be fake than cheap horns, law enforcement should concentrate on finding and prosecuting those selling expensive horns. Else, if expensive horns are as equally likely to be fake as cheap horns, buyers are better off purchasing cheap horns, thereby putting downward pressure on all prices. Past a certain price level, it becomes too costly to source any horns from the wild, and the entire market will consist of biofabricated horns.

So, was I arrested? Thankfully, no, I wasn't. The meeting with the DFW agents went well. They asked insightful questions, and I gained a better understanding of their concerns. Further, I renewed my commitment to making sure Pembient operates in the open so it can stay on the right side of the law.

As far as HSUS is concerned, it can make no such assertion. It continues to operate in secrecy, attempting to co-opt law enforcement to further its agenda. One would hope that the organization would be dealing with more pressing issues, including its appalling tolerance of sexual harassment. I wonder what HSUS's donors think. Do they realize that their hard-earned cash is going to a glorified law firm and not to help animals? Does obstructing science and innovation during a time of rampant wildlife poaching sound wise to them? What would they do if they found out that an economist recommends that non-profits should subsidize biofabrication instead of attempting to ban it? I don't know the answers, but I intend to find out.