Alex Tapscott and NextBlock Global Ltd., a blockchain venture that shelved a public offering following a report that it listed prominent industry players as advisors who hadn’t agreed or consented to act in that capacity, have paid $1 million in penalties to settle Ontario Securities Commission allegations of breaching securities rules through misleading disclosure.
The settlement was approved Monday by a panel of OSC Commissioners.
NextBlock and Tapscott, who was the firm’s chief executive, “acknowledge and admit that they made statements in offering memoranda … that, in a material respect and at the time and in light of the circumstances under which the statements were made, were misleading or untrue or did not state a fact that was required to be stated or that was necessary to make the statements not misleading,” according to the settlement agreement, which was approved by an OSC panel on Monday.
In addition to the $300,000 portion he will pay to settle the allegations, Tapscott told the commission he would deliver presentations on the impact and consequences of his misconduct at three Canadian business schools in the context of an ethics course, and publish an open letter on the subject in a national publication.
“We’re happy to have this matter resolved,” Tapscott said in a telephone interview Tuesday. “I’ve learned a lot from this and I’m deeply grateful to our investors for their patience, and I’m happy that they prospered.”
During the settlement process, Tapscott voluntarily declined about $3 million in carried interest that he was entitled to based on NextBlock’s profits. He also asked the OSC panel to consider that he and others at NextBlock, which paid the remaining $700,000 administrative penalty, knew the four individuals named on slide decks circulated to prospective investors personally — though he acknowledged that they were not advisors to the firm and should not have been identified as such, according to the settlement agreement made public by the regulator.
In November of 2017, Forbes magazine published a story in which some of the people listed as advisors to the blockchain venture on slide decks sent to investors were quoted saying they had not agreed to act in that role. These included Kathryn Haun, a former U.S. Department of Justice prosecutor and director at Coinbase, which was one of the first crypto companies to be deemed a unicorn for its valuation of more than $1 billion.
Shortly after the story was published, NextBlock pulled a planned financing — including an initial public offering through a reverse takeover and a second private placement — that was to raise $100 million. The firm was wound down and money was returned to early investors who had injected $20 million through an initial private placement. Those investors received an additional $28 million in distributions, representing a 140 per cent profit.
As part of this week’s settlement with the OSC, NextBlock paid $100,000 to cover the costs of the regulator’s investigation, which included assistance from the U.S. Securities and Exchange Commission, according to an OSC news release.
“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.”
He added that the settlement with NextBlock and Tapscott reflects the regulator’s view that all materials provided to investors must contain fair and accurate information, regardless of returns.
“This settlement reinforces an important message,” Kehoe said. “We will take action to address misleading disclosure and the serious harm it causes to Ontario investors and our markets, even if investors suffer no financial losses.”
Copyright Postmedia Network Inc., 2019