Nexo Capital Fined by U.S. SEC for Unregistered Lending Offering

Nexo Capital Inc. was fined by the U.S. Securities and Exchange Commission (SEC) unregistered offer and sale of its lending product.

The securities regulator said in a statement that Nexo agreed to pay a cumulative fine of $45 million. It includes a $22.5 million fine for offering and selling the product to American investors.

The platform will also pay an additional $22.5 million to resolve similar claims brought by state regulatory authorities.

Nexo Earn Product Deemed a Violation

As per the SEC’s directive, Nexo started to market and sold its Earn Interest Product (EIP) in the United States in and around June 2020. The product assured the holders that Nexo would pay interest on it. However, according to the order, Nexo used this opportunity to use investors’ crypto assets in a variety of ways to both fund interest payments and generate income for its own business.

The SEC alleges that the EIP is a security, and its sale and offer did not meet the requirements for an exemption from SEC registration.

SEC Chair Gary Gensler said, “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.”

However, the platform has neither accepted nor denied the allegations. The SEC says that it has only agreed to the agency’s cease-and-desist order.

Departure From US Markets

Last month, Nexo announced a “regrettable but necessary decision” of gradually discontinuing its goods and services in the U.S. over the upcoming months. Meanwhile, according to Nexo’s website, EIP is unavailable for residents of a few countries, including the USA, Bulgaria, and Estonia.

Antoni Trenchev, Co-founder of Nexo, said, “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,”

SEC Grows Stricter

Notably, the SEC has grown stricter with crypto products. According to Cornerstone Research, 30 enforcement proceedings involving cryptocurrencies were brought by the SEC under the chairmanship of Gary Gensler in 2022. This is an increase of 50% from 2021, per the report.

That said, lending products remain a matter of regulatory debate in the U.S. This month, SEC has also charged Gemini for the unregistered offering via the Gemini Earn program.

As far as Nexo is concerned, it isn’t the end of the troubles for the platform. Bloomberg reported last week that Bulgarian police raided the lender’s Sofia office. Now, Nexo is part of a probe into possible tax crimes, money laundering, and illegal banking activity.

Meanwhile, media reports noted that the lending platform had sued the Cayman Islands Monetary Authority (CIMA). It suit concerns CIMA’s denial to provide Nexo a virtual asset license.