Rep Fined $20K for Blockchain-Related OBA
A registered representative from Montrouge, France was fined $20,000 and suspended from association with any FINRA member, in all capacities, for two years due to the entry of findings that he engaged in an outside business activity involving blockchain technology without providing prior notice to his member firm.
The findings stated that the member firm’s WSPs required that all firm employees request and receive approval from the firm prior to engaging in any outside business activity. Firm employees were also required to ensure that information regarding their outside business activities remained current and accurate and they were to report any material changes to the firm. The representative invested approximately $80,000 of his own funds into developing the technology, launched a website and Twitter account under a pseudonym, assembled a team of advisors and published two position papers describing the blockchain technology and its application as a self-amending crypto-ledger.
In 2015, the representative continued his blockchain technology-related business activities, retaining a chief operating officer (COO), developing a business plan and valuation and presenting the business plan to twelve prospective individual and institutional investors, including four clients of his firm. The business plan described himself as the blockchain technology’s chief executive officer (CEO) and his experience in the securities industry. The business plan sought to raise $5 to $10 million in working capital and described how the technology would use the funds to finance its business operations, which included his proposed salary of approximately $200,000 per year.
Although the representative knew he was required to disclose any outside business activity, he did not inform the firm about his blockchain technology-related activities. Outside of his meetings with prospective investors, he only publicly associated himself with the blockchain technology after his employment with the firm ended. As a result, his use of a pseudonym to promote the technology effectively concealed his involvement with the blockchain technology from the firm.
The findings also stated that the representative falsely attested on two firm questionnaires that he had disclosed all of his outside business activities. The findings also included that the business plan he created and distributed to prospective investors failed to provide a balanced presentation and sound basis for evaluating an investment in the technology.
Although the business plan described its revenue assumptions as “pessimistic,” “neutral” and “optimistic,” it did not discuss all of the circumstances in which the technology might not realize the projected revenues and/or future value, and failed to balance its positive discussions about the company with adequate risk disclosures that explained the speculative nature of the proposed investment.
The business plan also contained forward-looking predictions of the company’s performance that were potentially misleading since, at that time, the blockchain technology was still in development, had no revenues and its future performance was conditioned on, among other things, building a portfolio of users and raising working capital.
The suspension is in effect from May 7, 2018, through May 6, 2020.
To read the complete disciplinary action, click here.