The London-based crypto banking platform will pay $22.5 million each in fines to the Securities and Exchange Commission (SEC) and eight other state regulators for offering and selling unregistered securities to U.S investors. The Nexo Earn Interest product promised yield to customers who lend their crypto assets to the company.
The U.S Securities and Exchange Commission (SEC) has charged crypto lender Nexo Capital Inc. with failing to register the offer and sale of its Earn Interest Product (EIP). Nexo has agreed to settle the charges by paying $22.5 million in fines to the SEC and an additional $22.5 million in settlements to state regulatory authorities that sued the company under similar charges. The crypto bank will also cease offering and sale of its unregistered crypto asset lending product, “Earn Interest”, to U.S customers.
Prior to the SEC’s convictions, On December 5, 2022, Nexo announced it was shutting down all operations in the United States, citing lack of regulatory clarity. The firm halted its EIP in eight states where it had been operating and declined new customer registrations. Earlier last year, Nexo suspended Earn Interest in New York and Vermont. In September 2022, state regulators of California, Oklahoma, Kentucky, South Carolina, Maryland and Indiana, filed a cease-and-desist order against the crypto bank for its Earn Interest product, which they claimed was unregistered securities.
At the time, Nexo argued it had not broken any financial laws and was one of the few crypto firms in the country to have registered its activities with regulators. The same month Nexo acquired a stake in Summit National Bank – a U.S chartered bank regulated by the Treasury department – to operate as a regulated financial service provider. The crypto lender had plans to offer Earn Interest under the Wyoming-based bank’s charter licence to more than 93,000 U.S customers who deposited over $800 million into the program.
Nexo began to offer and sell its EIP in the United States in June 2020. The product allows retail investors in the country to lend their crypto assets to Nexo in exchange for interest promised by the company. According to the SEC’s order, Nexo marketed the product as a means for users to earn yield on their cryptocurrencies, and the company exercised its discretion to use investors’ assets to generate revenue for its own business and to fund interest payments to EIP clients. The SEC finds Nexo Earn Interest to be a security and that its offer and sale did not qualify for an exemption from the agency. Meaning Nexo was required to register the product as a security, which it failed to do.
SEC took Nexo’s remedial action to suspend all services in the country and its cooperation with authorities into consideration when agreeing to settle charges. The company also agreed to SEC’s cease-and-desist order that prohibits it from violating the registration provisions of the Securities Act of 1933, and did not admit nor deny the regulator’s findings.
“Compliance with our time-tested public policies isn’t a choice. Where crypto companies do not comply, we will continue to follow the facts and the law to hold them accountable. In this case, among other actions, Nexo is ceasing its unregistered lending product to U.S investors,” said SEC chairman Gary Gensler.
Lately, the British company founded by Antoni Trenchev has found itself the subject of a high-profile investigation by authorities in Bulgaria. According to a statement released by the Bulgarian Prosecutor’s Office, an active investigation is underway to “neutralise the crypto bank’s illegal criminal activities”. Officials say they have evidence that one person known to be a terrorist financier has been using the platform to transfer cryptocurrencies. Authorities even raided Nexo’s offices in Sofia as part of the investigation.
In a Twitter thread, Nexo said it is cooperating with authorities and regulators, adding that the company never compromises when it comes to applying its stringent AML and KYC (know-your-customer) policies.
At the time of writing, NEXO token is trading at $0.82 – up by 12.5% in the last 24-hours.