From Social Security to Song Securities

Time will tell if Springfield businessman Chase Tweel was in just the right place at just the right time.

Tweel, the son of a Nashville songwriter and industry stalwart, is a former Washington, D.C., tax attorney who worked most recently as a retirement research analyst with Springfield-based Pension Consultants Inc. On Sept. 23, with the help of his father, Jeff Tweel, he launched TweelX, a stock exchange for music.

Enabled by a regulation change in the Jumpstart Our Business Startups Act passed last year, TweelX is an online trading platform for buying and selling shares in the music securities market. The bill was designed to spur startup investments by legalizing equity-based crowdfunding. While crowdfunding sites were legal well before the JOBS Act, now investors can buy equity into new businesses, though most of the rules governing its implementation have yet to be written.

Tweel’s last day at Pension Consultants was Sept. 6.

“I caught a virus with this thing, so I’m taking an immense amount of risk to see if it can work,” Tweel said, declining to disclose investment costs. “If it doesn’t work, my life will have taken a significant hit. It was not an easy decision. The biggest costs are the opportunity costs for me because I’m turning my back on my career.”

As of Sept. 30, he said 180 investors had created TweelX accounts to buy shares of music from new artists, resulting in first week gross sales of $13,000.

Each time an artist adds a song to TweelX.com, five shares are created for investors, and each share is worth 5 percent of the royalties it could generate. Share prices are currently fixed at $500 per share, or $2,500 per song.

The concept allows songwriters to generate money and exposure, while retaining at least 75 percent of their potential royalties. Though not part of the core business model, Tweel said select artists could enter into a publishing arrangement to split royalty rights with TweelX.

Spurred by JOBS Act
The startup with a Springfield-Nashville connection coincided with the formal implementation of rules regarding general solicitation of securities offerings, which was previously prohibited.

Springfield private wealth adviser Ron Penney said much of the JOBS Act still needs to be ironed out, in part, because former Securities and Exchange Commission head Mary Schapiro opposed the legislation and dragged her feet when writing the rules.

“It has had some trouble getting implemented, that’s very true,” said Penney, who attended a breakout session on the JOBS Act at a Barron’s magazine workshop last month in Orlando, Fla. “The short story is everything in politics right now is a mess, and the JOBS Act is no different.”

The delays left crowdfunding startups such as Springfield-based CrowdIt.com to wait and see how they can establish their own equity-based platforms.

Now with some language to work with, Penney said new investment platforms pose some hazards to the industry.

“Crowdfunding under the JOBS Act has been liberalized to allow more (investment) and less restriction. It is a little scary in that respect because you don’t know who you may be putting money with,” Penney said.

Tweel said the idea for a music stock exchange predates the passage of the JOBS Act, but he had to wait until the SEC released early rules in July.

“My original legal supposition on the topic was that we wouldn’t be under securities law scrutiny at all,” Tweel said, noting people in the music industry buy and sell music publishing catalogs and music copyrights all the time without any regulation. “But after retaining more sophisticated securities law counsel – because I didn’t have any expertise in securities law, I just knew enough to be dangerous – we realized it is all context dependent.

“In the context of an online platform where you are dividing rights up and the investors are not actively participating in the profits of the songs, it is a security.”

Songs to stock
Among the 25 artists on the platform as of Oct. 2 are local bands Abby Benton & the Eskimo Girls, the Justice Adams Band and Truett & the Traitors.

“I was just playing a little show downtown at Nathan P. Murphy’s with the gals and Chase Tweel was there with a friend,” singer/songwriter Abby Benton said. “He heard us and said, ‘I love your stuff,’ and then came to another show. Before you know it, he said ‘I’d love to make you a part of this thing I’m doing.”

She said the group met Tweel before Christmas, and by January, the members were recording three songs with John Willis at Willisoundz in Nashville. A guitarist and producer, Willis has recorded with such artists as Alabama, Taylor Swift, Faith Hill and Tim McGraw.

“It was a really great experience to have (Willis) hear my song idea and construct it from nothing to something in a matter of hours,” said Benton, whose song had sold one share on TweelX.com as of Oct. 1. “It’s not like I’m going to see results in a month, or maybe even a year, but I know this company believes in the talent and is willing to record and pitch to the right people.”

Bart Herbison, executive director of the 6,000-member Nashville Songwriters Association International, said the exchange could be a shot in the arm for the music industry.

“I think this is very intriguing,” Herbison said. “Over the last decade, we’ve lost around 90 percent of all songwriters and composers in the United States who do this as a full-time occupation but are not the artist – pure songwriters. The main reason is Internet music piracy. Their incomes have decreased as much as 70 percent or 80 percent.

“I applaud them for exploring any opportunity to monetize these works.”

Tweel said the recently written regulations allowing for general solicitation mean businesses and their brokers can market their stock to the general public, provided they are accredited investors. According to the SEC, accredited investors are individuals who demonstrate a net worth of more than $1 million or entities with assets of more than $5 million.

Tweel expects record executives and publishing companies will be likely investors, though a draw in the future could be fans who are accredited investors and would spawn a niche market for investment in classic songs.

Current artists on TweelX include country music singer-songwriter Billy Montana and southern rock band Mama’s Love. While the early interest is largely focused on country acts, the site features songs from a variety of genres.

Tweel’s first-year goal is to sell stock in 500 songs.

“I think it is realistic but high-hanging enough that we’ll have to stretch for it,” he said.