Why Nexo is Suing Bulgaria for $3 Billion

In a groundbreaking development in the crypto sector, Nexo, a prominent crypto lender, is pursuing a staggering $3 billion in damages from Bulgaria.

This claim arises from an aborted criminal investigation that Nexo contends severely hampered its expansion plans and market value. This move marks a significant escalation in the tensions between the innovative crypto world and traditional state mechanisms.

How Nexo’s Conflict With Bulgaria Started

Nexo’s journey through turbulent waters began in January 2023 when Bulgarian prosecutors launched a wide-reaching investigation into the company. The authorities raided Nexo’s offices in Sofia, the capital city, and charged the founders with serious offenses, including money laundering and computer fraud.

Read more: Nexo Review: Exploring the Crypto Lending Platform

Last year, Nexo’s offices in the Bulgarian capital witnessed over 15 raids. This investigation cast a dark shadow over Nexo’s operations, leading to international repercussions.

According to Reuters, Nexo alleged that these actions not only tarnished its reputation but also derailed critical business ventures. Among the lost opportunities cited were a highly anticipated US stock market listing and a lucrative soccer sponsorship deal. Nexo argues that these lost opportunities have resulted in substantial financial damage and eroded shareholder value.

The situation took a turn when the Bulgarian authorities dropped the case due to lack of evidence. They cited an underdeveloped legal framework for crypto services in the country. Despite this, the damage was already done.

In an unusual move for a crypto firm, Nexo decided to seek compensation for the alleged harm caused by the investigation. For this, they approached the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in Washington. ICSID, known for handling disputes between international investors and states, registered the case on January 18.

Meanwhile, Bulgaria’s finance ministry acknowledged receiving a request for arbitration from ICSID. An inter-departmental committee is set to review the case and propose subsequent actions. However, the ministry has clarified that this does not constitute an admission of the claims’ substance or an acceptance of any arbitral jurisdiction.

“This or any other communications… shall not be considered in any way an admission as to the substance of any claims or as an acceptance of any arbitral jurisdiction,” said Bulgaria’s Finance Ministry.

Previous Legal Challenges

This case isn’t Nexo’s only regulatory hurdle. In January 2023, the US Securities and Exchange Commission (SEC) fined Nexo for the unregistered offer and sale of its lending product, totaling a cumulative fine of $45 million. This included a $22.5 million penalty for dealing with American investors and an additional $22.5 million to settle similar state regulatory authority claims.

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

Nexo’s legal battle with Bulgaria is unprecedented in the crypto world. Typically, companies do not pursue legal action against nations for dropped investigations. However, ICSID has a history of ordering countries, including Pakistan, Ecuador, and Venezuela, to pay substantial damages to companies. This case could set a significant precedent for how countries interact with the crypto industry and handle regulatory and legal challenges.