The Securities and Exchange Commission (SEC) and the Ontario Securities Commission (OSC) have jointly taken action against Alex Tapscott and NextBlock Global Limited for misleading investors pertaining to digital asset investments. Both agencies require Tapscott-NextBlock to pay penalties affiliated with the securities offering.
According to filed documents, Tapscott and three co-founders launched NextBlock in June 2017 for the purpose of investing in blockchain companies. NextBlock and Tapscott solicited investment through a private placement of convertible debentures. The offering subsequently raised approximately $20 million CAD (approximately USD $16 million) from over 100 investors in Canada, the US, and elsewhere.
NextBlock filed a Form D with the SEC on August 11, 2017, that indicated that approximately $2.4 million USD of the convertible debentures were sold to U.S. investors.
In promotional material, NextBlock and Tapscott falsely represented that as many as four individuals who are prominent in the blockchain industry were serving as advisors to NextBlock. During the height of the ICO craze, affiliation with prominent “advisors” could solidify investment in an offering.
A second funding round was planned but following disclosure of the misrepresentations, NextBlock canceled the round and abandoned a planned public listing on the Toronto Stock Exchange. The company then voluntarily initiated court proceedings in Ontario to wind up the company, liquidate the existing digital asset holdings, and return to the debenture holders their principal investment plus profits.
A Panel of the OSC has approved a settlement agreement with Alex Tapscott and NextBlock in connection with misleading statements made in offering.
As a part of the settlement, NextBlock has agreed to pay an administrative penalty of CAD $700,000 plus $100,000 toward the costs of OSC Staff’s investigation. Additionally, Tapscott will pay an administrative penalty of CAD $300,000.
According to the OSC, the settlement reflects that Tapscott has voluntarily declined approximately CAD $3 million in carried interest that he was entitled to based on NextBlock’s profits.
In settling this matter, the respondents admited they made misleading statements in slide decks provided to investors which included names of advisors unaffiliated with the offering. The OSC said that one individual had never been approached by Tapscott to act for NextBlock in any capacity.
“We will not tolerate market participants who play fast and loose with the facts when providing offering memoranda to prospective investors, including marketing decks,” said Jeff Kehoe, Director of Enforcement at the OSC. “This dishonest behaviour robs investors of the opportunity to make informed investment decisions and undermines confidence in our markets.”
Tapscott has agreed to perform community service by delivering ethics presentations at Canadian business schools, which will feature the importance of complying with securities law.
Additionally, Tapscott offered to publish an open letter about the impact and consequences of his misconduct in a national news publication. The OSC Staff has accepted this offer, and included it as a terms of the settlement.
The SEC considered the remedial acts undertaken by the respondents, as well as the agreement with the OSC, and is requiring Tapscott to pay a civil money penalty in the amount of $25,000.