An Open Letter from 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.