On May 14, 2019, the Ontario Securities Commission (OSC) and the Securities and Exchange Commission (SEC) concluded separate settlement agreements with Toronto-based NextBlock Global Limited (NextBlock) and its chief promoter, Alex Tapscott over the making of misleading statements.
In June of 2017, Tapscott, who served as NextBlock’s CEO, founded the company, along with three others, for the purpose of investing in blockchain companies and related digital assets. The company solicited investment through a private placement of convertible debentures, ultimately raising $20 million (CAD) from 113 Canadian accredited investors and $2.4 million (USD) from a smaller group of U.S. investors.
As CEO, Tapscott led the fundraising effort and was responsible for communicating with investors and developing and maintaining slide decks used to market the business to potential investors. However, on the slide decks, NextBlock and Tapscott had stated that four recognized experts in the blockchain industry – three in the U.S., one in Canada – were advising NextBlock, where in reality they were not. None of these individuals had ever agreed to serve as advisors to NextBlock. This misrepresentation served as a major part of the company’s ongoing marketing efforts.
Late in November 2017, media reports began to surface regarding Tapscott and NextBlock’s misrepresentation. At the time, the company had hired two Canadian investment banks for a planned public placement on the TSX and was in the middle of a second fundraising round. Following this disclosure, the company abandoned its plans and began court proceedings to cease operations, returning to investors their principal plus investment interest (140% in March 2019). Tapscott at the same time voluntarily surrendered his $3 million (CAD) share in NextBlock’s interest that would’ve been ordinarily his.
The misrepresentations Tapscott and NextBlock made were contrary to Sections 127 and 127.1 of the Securities Act, RSO 1990, c S.5 (the Securities Act). However, reflecting the steps Tapscott took in order to remedy the situation, the OSC reached a settlement, which saw the company paying an administrative penalty of $700,000 (CAD) plus $100,000 (CAD) toward the costs of the OSC’s investigation. Tapscott will also pay an administrative penalty of $300,000 (CAD). Additionally, Tapscott has agreed to perform community service at Canadian business schools by delivering presentations on ethics and the importance of complying with securities law. He has also agreed to publish an open letter in a national news publication about the impact of his misconduct.
The SEC reached its own settlement with Tapscott and NextBlock. The SEC had found the company and its CEO were in violation of the Securities Act of 1933. The company voluntarily consented to the filing of a cease-and-desist order by the regulator. In addition, the SEC, bearing in mind the actions taken by Tapscott and the agreement reached with the OSC, imposed a $25,000 (USD) fine.
In the Matter of NextBlock Global Limited and ALEX TAPSCOTT, ORAL REASONS FOR APPROVAL OF A SETTLEMENT (Sections 127 and 127.1 of the Securities Act, RSO 1990, c S.5) is available for downloaded from the website of the Ontario Securities Commission.
In the Matter of NextBlock Global Limited and ALEX TAPSCOTT, Order Instituting a Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order, is available for download from the website of the Securities and Exchange Commission.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
