Nexo Capital Inc has come to an agreement with the SEC over failing to register its offer and sale of the Earn Interest Product (EIP), a retail crypto asset lending product. To settle the charges, Nexo has agreed to pay a $22.5m penalty and to cease its unregistered offer and sale of the EIP to US investors.
“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,” 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 US investors,”
The company has also agreed to pay an additional $22.5m in fines to settle similar charges in a parallel action brought by state regulatory authorities.
“We are not concerned with the labels put on offerings, but on their economic realities. And part of that reality is that crypto assets are not exempt from the federal securities laws.”
Gurbir S Grewal, Director, SEC Division of Enforcement
Earn interest
Nexo started to offer and sell the EIP in the United States in June 2020. With the EIP, US investors could tender their crypto assets to Nexo in exchange for the promise to pay interest.
The SEC claims that Nexo “marketed the EIP as a means for investors to earn interest on their crypto assets”, and that the company “exercised its discretion to use investors’ crypto assets in various ways to generate income for its own business and to fund interest payments to EIP investors”.
The SEC’ finds’s view is that the EIP is a security, and that Nexo was required to register the offering and sale of it, which the company failed to do.
“We are not concerned with the labels put on offerings, but on their economic realities. And part of that reality is that crypto assets are not exempt from the federal securities laws,” said Gurbir S Grewal, Director of the SEC’s Division of Enforcement. “If you’re offering or selling products that constitute securities under well-established laws and legal precedent, then no matter what you call those products, you’re subject to those laws and we expect compliance.”
Violating registrations provisions
Nexo has, without admitting or denying the findings, agreed to a cease-and-desist order prohibiting it from violating the registration provisions of the Securities Act of 1933.
Since settling with the SEC, Nexo has voluntarily ended the EIP offering to new US investors, and stopped paying interest on new funds added to existing EIP accounts of the US investors.
Furthermore, since December, Nexo has also ceased offering the EIP in certain states, and is phasing out all of its products and services in the United States, including permanently ceasing to offer the EIP to all US investors.
“Compliance with our time-tested public policies isn’t a choice.”
Gary Gensler, Chair, SEC
Antoni Trenchev, Co-founder of Nexo, commented on the charges: “We are content with this unified resolution which unequivocally puts an end to all speculations around Nexo’s relations to the United States.”
And Nexo co-founder Kosta Kanthchev said: “We are confident that a clearer regulatory landscape will emerge soon, and companies like Nexo will be able to offer value-creating products in the United States in a compliant manner.”
In February 2022, the SEC brought similar charges against BlockFi and its crypto investment. Then, the company was fined over $100m in total.