The SEC has settled charges against NextBlock Global Ltd., a Canadian investor in blockchain companies, and Alex Tapscott, its co-founder and former CEO, for making material misrepresentations in connection with a 2017 securities offering that raised $16 million from more than 100 investors.
According to the SEC’s cease and desist order, as part of NextBlock’s fundraising efforts, NextBlock and Tapscott falsely represented to investors that prominent individuals in the blockchain community were serving as advisors to the company.
“These misrepresentations were part of the selling point of NextBlock’s fundraising effort: that NextBlock and Tapscott had access to, and unparalleled relationships with, opinion-makers, the best entrepreneurs, and the highest profile figures in the blockchain community,” said the SEC in its order. “NextBlock and Tapscott knew or should have known that the statements to investors regarding these advisors were inaccurate.”
NextBlock invested the proceeds of the convertible debenture offering in digital assets that were consistent with disclosures to investors. The company and Tapscott then initiated a second fundraising round, and hired two Canadian investment banks to advise the firm on a fundraising to facilitate a public listing on the Toronto Stock Exchange.
In November 2017, while this second fundraising effort was underway, press reports disclosed that NextBlock and Tapscott had made misrepresentations to investors during the convertible debenture offering. As a result of the news, NextBlock cancelled the second fundraising round and abandoned the planned public listing. 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.
During the court proceedings Tapscott voluntarily surrendered his right to collect more than $2 million in NextBlock’s profits that resulted from NextBlock’s investment of the offering proceeds. This amount was retained by NextBlock and formed part of the distributions to debenture holders.
The order said that NextBlock and Tapscott violated the antifraud provision of the Securities Act of 1933. NextBlock and Tapscott agreed to the entry of a cease and desist order, and NextBlock paid an administrative penalty of C$700,000 ($520,000), while Tapscott agreed to pay a $25,000 civil penalty. NextBlock and Tapscott also have entered into a settlement agreement with the Ontario Securities Commission.
Neither NextBlock nor its securities has ever been registered with the SEC in any capacity.