SEC Resolves Cross-Border Offering Fraud Action

Offering frauds are one of the key staples of SEC Enforcement. These cases may well be the largest single category of actions by the end of the fiscal year. That would, of course, be consistent with the retail investor focus of the Division. The Commission’s most recent action in this area involves a cross-boarder offering by a Canadian corporation based in Toronto and its principal. In the Matter of NextBlock Global Ltd., Adm. Proc. File No. 3-19164 (May 14, 2019).

NextBlock Global is a Canadian entity co-founded and owned by Respondent Alex Tapscott. Prior to founding NextbBock in June 2017, Mr. Tapscott held Series 37 and 63 licenses. In June and July 2017 Respondents solicited investment through a private placement of convertible debentures. The efforts were led by Mr. Tapscott.

As a result of the solicitations NextBlock raised about $20 million CAD from over 100 investors in Canada, the United States and elsewhere. On August 11, 2017 the firm filed a Form D Notice of Exempt Offering of Securities with the Commission. The notice indicated that about $2.4 million USD of the convertible debentures were sold to U.S. investors. The form was signed by Mr. Tapscott as CEO of the firm.

The slide decks used in Canada and the United States to solicit investors indicated that four individuals who are prominent in the blockchain industry were serving as advisers to the company. Three of those individuals are in the United States. These representations were part of the selling points for the capital raise. The statements were false.

NextBlock then initiated a second round of fund raising. Two Canadian investment banks were retained to advise on the effort and to facilitate a public listing on the Toronto Stock Exchange. As the effort continued, press reports disclosed for the first time that the firm and its CEO made misrepresentations to investors during the convertible debenture offering. NextBlock cancelled the offering and planned listing.

Subsequently, the firm voluntarily initiated court proceedings in Ontario to wind up operations and liquidate the existing digital asset holdings. In the proceedings the firm returned to the debenture holders their principal investment plus profits. Mr. Tapscott voluntarily surrendered his right to collect over $2 million USD share of the profits that resulted from the investment of the offering proceeds. The company included this amount in the distributions to debenture holders.

NextBlock and Mr. Tapscott settled with the Ontario Securities Commission. The settlement included an acknowledgment of responsibility. The SEC noted the remedial acts of Respondents while the firm recognize that the SEC did not impose a civil penalty as part of its resolution of these proceedings based on the company payment of $700,000 CAD (about $520,000 U.S.) in the resolution with the OSC.

The Order alleges violations of Securities Act Section 17(a)(2).

To resolve the proceedings, Respondents each consented to the entry of a cease and desist order based on the section cited in the Order. In addition, Mr. Tapscott will pay a penalty of $25,000.

SEC 85th Anniversary Gala: On June 3, 2019, the SEC Historical Society will host a gala celebration to commemorate the 85th Anniversary of the founding of the U.S. Securities and Exchange Commission and its 20th Anniversary. The event will be held at the Building Museum, Washington, D.C. Following a brief program featuring SEC Chairman Jay Clayton, there will be cocktails and dinner. For further information regarding tables, tickets and advertisements in the program please contact the Society here on or before May 17, 2019 (full disclosure Mr. Gorman is the President of the Society).

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Trading Algorithm Is a Ruse for Securities Fraud

Developing a computerized approach for high-speed trading through the use of a new algorithm might typically be the introduction to a new “spoofing” case brought by the CFTC or the DOJ. Where, however, it is the inducement for an investor to put up substantial amounts of capital for development which then disappears, it can also be the latest variation of an offering fraud. That is precisely the situation in U.S. v. Roberson, Case No. 7:18-cr-0011 (S.D.N.Y. Guilty plea May 10 2019).

Brian Roberson and his Partner met Investor in late 2010. Mr. Roberson controlled Savant Capital Management LLC at the time. He had a trading algorithm under development by a firm. Mr. Roberson told Investor and Partner that favorable terms could be secured at a securities Clearing Firm because the account he his firm, Savant Capital Management LLC, had a substantial balance.

In early 2011 Mr. Roberson suggested that Investor wire funds to Savant for trading with the algorithm which was under development. The funds would be deposited with Clearing Firm. The investor wired $250,000. While Mr. Roberson did deposit about $233,000 of the transferred capital to the account as represented, the balance was moved to others for his personal use.

By April Mr. Roberson stopped making payments to the vendor who was developing the trading algorithm. When Investor demanded the return of his funds, he only received $50,000. A substantial portion of Investor’s funds had been lost through trading. Other portions had been transferred to accounts for the benefit of Mr. Roberson and his family. The account with the broker was closed. The claim that it once had substantial balances was false.

Mr. Roberson was charged with securities fraud. On May 8, 2019 he pleaded guilty to one count of securities fraud. Sentencing is scheduled for August 26, 2019.

85th SEC Anniversary Gala: On June 3, 2019, the SEC Historical Society will host a gala celebration to commemorate the 85th Anniversary of the founding of the U.S. Securities and Exchange Commission and its 20th Anniversary. The event will be held at the Building Museum, Washington, D.C. Following a brief program featuring SEC Chairman Jay Clayton, there will be cocktails and dinner. For further information regarding tables, tickets and advertisements in the program please contact the Society here on or before May 17, 2019 (full disclosure Mr. Gorman is the President of the Society).

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