The SEC charged Nexo on Thursday with failing to register its Earn Interest Product retail crypto asset lending product. Nexo agreed to pay a $45 million penalty to satisfy the charges brought against the company. Nexo has agreed to pay the SEC $22.5 million in fines, as well as state authorities $22.5 million in fines.
Nexo faced regulatory scrutiny for its EIP in September 2022 from eight states in the United States, including California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington, and Vermont. State officials said that Nexo sold its products without registering them as securities and without properly disclosing them to customers.
According to the SEC, Nexo began providing its EIP in June 2020, allowing US investors to surrender their crypto holdings in exchange for a promise of interest. After the SEC filed similar accusations against another company in February 2022, Nexo discontinued marketing its product to new investors. According to aissued by the SEC:
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.
Despite the SEC and state regulators’ claims, Nexo is also the focus of a large-scale investigation in Bulgaria for suspicions of money laundering, computer fraud, tax evasion, and other offenses. Over 300 police officers searched the company’s offices in Bulgaria.
Nexo also sued the Cayman Islands Monetary Authority (CIMA) for denying its application to become a virtual asset service provider (VASP) in the jurisdiction. Nexo’s plan to sue CIMA comes after the regulator denied the lender’s registration as a VASP due to regulatory and enforcement concerns.
According to CIMA, “Nexo posed a risk to market confidence, consumer protection and the reputation of the Islands as a financial centre.” Nexo is requesting that CIMA’s judgment be reversed and that the lender be granted VASP registration.