Nexo Capital appears to be having a bad week. Bulgarian authorities said on Sunday that they had evidence of its clients conducting illegal activities via its platform.
This included financing terrorist activities, ‘tax offenses’ and money laundering. All of these claims have been denied by the crypto lender.
>> Try the #1 AI Trading Robot - Click Here <<
But, things went downhill from there for Nexo Capital because the US Securities and Exchange Commission (SEC) charged it with sale of unregistered securities on Thursday.
The SEC said that the crypto lending firm had not registered itself with the agency before it rolled out its lending product that has been plainly named ‘Earn Interest’.
Nexo has now agreed to a settlement with the SEC in which it will no longer offer the crypto lending product and will also pay a penalty of $22.5 million.
In addition, it will also settle the case with state regulators with a payment of $22.5 million. The director of the Division of Enforcement of the SEC, Gurbir S. Grewal, said that the labels of the offerings were irrelevant.
The important thing was the economic reality of a product and he added that crypto products were not exempted under the laws applicable to federal securities.
Grewal said that if a company is selling or offering products that are defined as securities according to the legal precedent and under the law, then it has to comply with said laws regardless of what it chooses to call them.
The SEC said in its filing that the ‘Earn Interest’ offering of Nexo Capital was not exempt from registering with the SEC, which means that Nexo should have registered it first before it offered it for sale.
Gary Gensler, the chairman of the SEC, said that Nexo had been charged for its failure of registering the retail crypto lending product before it decided to sell it.
Therefore, it bypassed the disclosure requirements that are aimed at protecting investors. He added that compliance with the policies outlined is not a choice.
Gensler said that they would hold all those crypto companies accountable that fail to comply with the law and they were doing the same in the case of Nexo which will discontinue the product in the US.
A British crypto platform, Nexo was formed back in 2018 and it loans digital assets of its clients, paying interest with the proceeds.
The company had rolled out the ‘Earn Interest’ product in June 2020, but a number of states in the US had filed cease-and-desist orders against the firm by September 2022.
These included Vermont, Maryland, Oklahoma, California, Kentucky, and South Carolina. These states claimed that the ‘Earn Interest’ product of the company was an unregistered security.
Nexo had announced in the same month that it was purchasing a stake in Summit National Bank, a federally chartered bank based in Wyoming.
In the aftermath of the collapse of a number of crypto companies, global regulatory bodies seem to have doubled up their enforcement efforts.