On May 14, 2019, the SEC entered an Order Instituting Cease and Desist Proceedings pursuant to Section 8A of the Securities Act against NextBlock Global Ltd. (“NextBlock”), a Canadian blockchain and digital asset investment firm, and its CEO Alex Tapscott ("Tapscott"), co-author of the book “Blockchain Revolution.”
The SEC found that NextBlock, founded in 2017 “for the purpose of investing in blockchain companies and related digital assets,” made various misrepresentations in connection with its solicitation of investment from private investors.
In its Order, the SEC noted that NextBlock raised approximately $16 million (USD) through a private placement of convertible debentures from more than 100 investors in both the United States and Canada, and elsewhere. In its Form D, NextBlock represented to the SEC that it had sold approximately $2.4 million to U.S. investors.
However, in their presentations to prospective investors, NextBlock and Tapscott falsely represented that they had prominent blockchain figures—three of whom are US based—advising NextBlock and providing them with access to top-tier blockchain opinion-makers and entrepreneurs.
While NextBlock invested the proceeds of their private solicitation consistent with investor disclosure, press releases reported that they had made various misrepresentations to investors, causing them to cancel their second fundraising round and abandon their planned listing on the Toronto Stock Exchange.
NextBlock voluntarily initiated court proceedings in Ontario to wind up the company, liquidate assets, and return principal investments plus profits to investors. The SEC found that NextBlock and Tapscott violated Section 17(a)(2) of the Securities Act by—in the offer and sale of their securities—obtaining money by means of materially untrue statements. The SEC ordered that NextBlock and Tapscott cease and desist from violating Section 17(a)(2) and ordered Tapscott to pay a civil money penalty of $25,000. Due to NextBlock’s approximately $520,000 administrative penalty imposed by the Ontario Securities Commission, the SEC did not impose a civil penalty.
Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.