Nexo agrees to $45M settlement with SEC and states over earn product

Crypto lender Nexo Capital has agreed to pay $45 million in penalties to the U.S. Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA) for failing to register the offer and sale of its Earn Interest Product (EIP).

The news was announced by the SEC and NASAA in two separate statements on Jan. 19. According to the statement from the SEC, Nexo agreed to pay a $22.5 million penalty and cease its unregistered offer and sale of the EIP to U.S. investors.

The additional $22.5 million will be paid in fines to settle similar charges by state regulatory authorities, the report said.

NASAA said in its statement that the settlement in principle comes after investigations into Nexo’s alleged offer and sale of securities after the past year of investigations.

“During the investigation, it was discovered that EIP investors could passively earn interest on digital assets by loaning those assets to Nexo.”

“Nexo maintained total discretion over the revenue-generating activities utilized to earn returns for investors. The company offered and promoted the EIP and other products to investors in the U.S. via its website and social media channels suggesting in some instances that investors could obtain returns as high as 36%,” it stated.

The SEC stated that in the settlement negotiations, the commission took into consideration the level of cooperation and the remedial acts promptly undertaken by Nexo in addressing their shortfalls.

SEC Chairman Gary Gensler said:

“We charged Nexo with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors.”

“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 as to all U.S. investors,” he added.

While the firm didn’t categorically admit or deny the findings from the SEC’s investigation, Nexo’s settlement came on the back of a cease-and-desist order agreement prohibiting the firm from violating any provisions of the Securities Act of 1933.

NASAA also explained that the investigation was conducted by at least 17 separate state securities regulators, who agreed to the terms set out in Nexo’s settlement.

While those states weren’t named, Nexo will pay a $424,528 fine to each.

Nexo confirmed the news to its 288,600 followers in a Jan. 19 tweet.

Nexo has reached a final landmark resolution with the U.S. Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA), consisting of all 50 U.S. States & 3 territories and the Attorney General of New York.https://t.co/modjbPsOdV

— Nexo (@Nexo) January 19, 2023

U.S. federal regulators did not allege any fraud or misleading business practices, Nexo said.

Nexo co-founder Antoni Trenchev said the firm is relieved to reach settlement in the United States:

“We are content with this unified resolution which unequivocally puts an end to all speculations around Nexo’s relations to the United States. We can now focus on what we do best – build seamless financial solutions for our worldwide audience.”

Related: Bulgarian authorities charge four individuals following raid on Nexo office: Report

Earlier this month, on Jan. 12, Bulgarian prosecutors began searching Nexo’s Bulgarian offices for allegedly being involved in a large-scale money laundering scheme as well as violations of Russia’s international sanctions.

On Jan. 16, Nexo took action of its own against the Cayman Islands Monetary Authority for placing “too much weight” on regulators’ enforcement actions in its decision to deny its virtual asset service provider registration.

Nexo Capital has offered a variety of trading, borrowing and lending services to retail and institutional customers in the United States since it was established in the Cayman Islands in 2018.

Cointelegraph reached out to Nexo Capital for additional comment but did not receive an immediate response.

Update 11:45pm UTC time January 19: Added comments from NASAA and Nexo Capital.