Cryptocurrency lender Nexo Capital has agreed to a fine of $45 million to settle charges brought against it by the United States Securities and Exchange Commission (SEC) and state regulators over its failure to register its crypto asset lending product.
On Thursday, the SEC announced that it charged Nexo with failing to register its retail crypto asset lending product called Earn Interest Product (EIP). In order to settle the charges brought against it, Nexo agreed to a pay penalty totaling $45 million. Nexo has agreed to pay $22.5 million to the SEC, and a further $22.5 million in fines to state regulators. In September 2022, Nexo came under regulatory fire for its EIP by eight states in the U.S.. including California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont. State regulators alleged that Nexo offered its product without them being registered as securities and without disclosing them properly to customers.
The SEC alleges that Nexo began offering its EIP in June 2020 which allowed U.S. investors to hand their crypto assets over to the company in exchange for a promise of interest. Nexo ceased offering its product to new investors after the SEC brought similar charges against another company in February 2022. The SEC issued a press release which states:
According to the SEC’s order, in or around June 2020, Nexo began to offer and sell the EIP in the United States. The EIP allowed U.S. investors to tender their crypto assets to Nexo in exchange for Nexo’s promise to pay interest. The order states that Nexo marketed the EIP as a means for investors to earn interest on their crypto assets, and Nexo exercised its discretion to use investors’ crypto assets in various ways to generate income for its own business and to fund interest payments to EIP investors. The order finds that the EIP is a security and that the offer and sale of the EIP did not qualify for an exemption from SEC registration. Therefore, Nexo was required to register its offer and sale of the EIP, which it failed to do.
Nexo Finds Itself the Subject of Investigations
Despite the charges brought against the lender by the SEC and state regulators, Nexo is also the subject of a large-scale investigation in Bulgaria relating to allegations of money laundering, computer fraud, tax offenses and various other crimes. The company’s offices in Bulgaria were raided by over 300 police officers.
Nexo further filed suit against the Cayman Islands Monetary Authority (CIMA) for rejecting its application to become a virtual asset service provider (VASP) in the country. Nexo’sdecision to sue CIMA comes after the regulator denied it registration as a VASP due to the regulatory issues and enforcement that currently surround the lender. CIMA argues that “Nexo posed a risk to market confidence, consumer protection and the reputation of the Islands as a financial centre.” Nexo seeks that CIMA’s decision be overturned and for the lender to be awarded a VASP registration.
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