An Open Let­ter from Alex Tap­scott

National Post (Latest Edition) - - FINANCIAL POST - Alex Tap­scott

Blockchain holds great po­ten­tial for busi­ness and govern­ment. Un­for­tu­nately, many busi­nesses, of­ten led by young first-time entreprene­urs, turn a blind eye to cap­i­tal mar­ket rules and make cru­cial er­rors of judg­ment when pur­su­ing new op­por­tu­ni­ties. I am one of these entreprene­urs. I have vol­un­teered to make this state­ment as part of an over­all set­tle­ment with the On­tario Se­cu­ri­ties Com­mis­sion. My goal in this let­ter is to not only ex­press my sin­cere re­gret for my own con­tra­ven­tion, but also to warn oth­ers in the blockchain world who may be­lieve that rules and reg­u­la­tions do not ap­ply to them. They do. If our in­dus­try is to suc­ceed, it is cru­cial that those work­ing in it un­der­stand and com­ply with the rules and reg­u­la­tions that are es­sen­tial to main­tain­ing the in­tegrity of our cap­i­tal mar­kets. There are sig­nif­i­cant con­se­quences if we do not. I hope oth­ers will learn from my ex­pe­ri­ence. As a 31-year-old first-time entreprene­ur, I was ex­cited to co-found Nextblock Global – a com­pany I be­lieved would fuel the growth of the blockchain in­dus­try in Canada and around the world. While I have worked in the blockchain in­dus­try for a few years, Nextblock Global was con­ceived in June 2017, dur­ing the height of the blockchain boom, when ini­tial coin of­fer­ings (ICOS) were rais­ing mil­lions and in­vestors glob­ally were ea­gerly look­ing to get ex­po­sure to this new as­set class. It was an ex­cit­ing and fre­netic time. As the CEO of this start-up, I was ul­ti­mately re­spon­si­ble for the in­vestor decks that de­scribed the Nextblock in­vest­ment op­por­tu­nity. These decks were the only ma­te­ri­als de­scrib­ing Nextblock’s busi­ness pro­vided to prospec­tive in­vestors. One slide in the decks was ti­tled “some of our blockchain ad­vi­sors” and set out a list of up to eight well-known in­flu­encers and ex­perts in the blockchain space. The slide decks were pro­vided to prospec­tive in­vestors in con­nec­tion with an of­fer­ing that raised $20 mil­lion and con­sti­tuted of­fer­ing mem­o­randa un­der On­tario se­cu­ri­ties law. At the time the decks were pro­vided to prospec­tive in­vestors, how­ever, four of those eight in­di­vid­u­als listed on the slide had not agreed to be ad­vi­sors to Nextblock and one of the four had not been asked. What­ever I was thinking at the time, it was wrong to pro­vide the slide to prospec­tive in­vestors with those four names on it. The slide rep­re­sented that these four in­di­vid­u­als had ac­cepted to be ad­vi­sors to Nextblock when they had not. Their in­clu­sion made the slide in­ac­cu­rate and mis­lead­ing. Those who in­vested $20 mil­lion in Nextblock re­lied upon these ma­te­ri­als to make an in­formed in­vest­ment de­ci­sion and would have been mis­led by the ad­vi­sors slide. A few short months af­ter rais­ing money from our ini­tial in­vestors, we moved quickly with a se­cond, sig­nif­i­cantly larger, fi­nanc­ing. With the grow­ing in­ter­est in blockchain at the time, it ap­peared this se­cond of­fer­ing would also be suc­cess­ful. Around this time, an ar­ti­cle was pub­lished about the mis­lead­ing slide we had included in our ma­te­ri­als to prospec­tive in­vestors. The ar­ti­cle shook in­vestor con­fi­dence and con­cerned our in­vest­ment bankers. Within a week, the bankers ad­vised us that they were not pre­pared to pro­ceed with the of­fer­ing. As a result of this and other fac­tors, just six months af­ter start­ing Nextblock, we made the de­ci­sion to liq­ui­date our investment­s and wind the com­pany down. I also in­formed our in­vestors that I was vol­un­tar­ily de­clin­ing my car­ried in­ter­est (i.e., profit share for manag­ing the com­pany’s as­sets) and I also pledged to work with­out a salary for as long as it took to see things through. We have returned all of the orig­i­nal $20 mil­lion back to our in­vestors and, as of March 31st, have dis­trib­uted an ad­di­tional $28 mil­lion of prof­its, in­clud­ing what would have been my $3 mil­lion in car­ried in­ter­est. Nev­er­the­less, my own fail­ings in this process have taught me about the con­se­quences and harm that im­proper dis­clo­sure causes to the in­tegrity of the cap­i­tal mar­kets. This has been a deeply hum­bling ex­pe­ri­ence for me and I have learned a great deal, which I am ea­ger to share with other entreprene­urs. I have learned that the urge in busi­ness to move quickly to seize upon op­por­tu­ni­ties must be tem­pered by the ne­ces­sity in law to be care­ful, truth­ful and com­pli­ant. I have learned about the vi­tal im­por­tance of ac­cu­racy in one’s state­ments, whether it be in a prospec­tus, an ICO whitepa­per, a web­site or an in­vestor deck. I also now more fully rec­og­nize the im­por­tance of un­der­stand­ing and com­ply­ing with se­cu­ri­ties laws. In Canada, manyreg­u­la­tors have set up­v­enues for blockchain com­pa­nies to seek in­put and cre­ate di­a­logue in or­der to nav­i­gate se­cu­ri­ties laws. In my­home­mar­ket of On­tario, the On­tario Se­cu­ri­ties Com­mis­sion has es­tab­lished the OSC Launch­pad for this ex­act pur­pose. I strongly en­cour­age entreprene­urs to reach out to them or their equiv­a­lents else­where. With all as­sets sold and most prof­its returned to in­vestors, I am ready to close this chap­ter of my life and open a new one. One month ago, my wife and I wel­comed our first child into the world. We are over­joyed. I be­lieve, now more than ever, that blockchain is a foun­da­tional tech­nol­ogy to the next era of hu­man progress and that Canada is on the brink of build­ing a great in­no­va­tion econ­omy around it. But entreprene­urs must be dili­gent, ad­here to all rules and reg­u­la­tions, pro­cure solid pro­fes­sional advice and work closely with their reg­u­la­tors. We need ad­vo­cacy, ed­u­ca­tion, and above all, re­spon­si­ble lead­er­ship, and I for one am com­mit­ted, now more than ever, to play my part.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.