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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 in response to the company's charges. Nexo agreed to pay the second $22.5 million in fines, and the state authorities agreed to pay $22.5 million in fines.
Nexo went through a regulatory review in September 2022 by eight U.S. states, including California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington, and Vermont. Government officials said nexo was selling its products without registering them as securities and without properly disclosing them to customers.
According to sec, nexo started providing its EIP in June 2020, allowing investors to sell their crypto assets in exchange for an interest promise. After similar charges were laid against another company in February 2022, nexo stopped marketing to new investors. According to a press release issued 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 has enabled American investors to offer their crypto assets to nexo in exchange for the nexo promise to pay interest.
The order indicates that nexo has commercialized the EIP as a way for investors to gain interest on their crypto assets, and nexo exercised its discretion to use the crypto assets of investors in a number of ways to generate revenue for its own operations and to fund interest payments to EIP investors. The order concludes that the EIP is a guarantee and that the offer and sale of the EIP were not eligible for a secondary registration exemption. Accordingly, nexo was required to record its offer and sale of EIP, and it did not do so.
Despite allegations by industry and government regulators, nexo is also under extensive investigation in Bulgaria for suspected money laundering, computer fraud, tax evasion and other offences. More than 300 policemen searched the company's Bulgarian offices.
Nexo also sued the Cayman Islands Monetary Authority (CIMA) for refusing its request to become a supplier of Virtual Asset Services (VASP) in the territory. Nexo's plan to pursue cima follows the regulator's refusal to register the lender as a vasp because of 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 asks that the CIMA ruling be overturned and that the lender obtain the VASP registration.
