Crypto lender Nexo has agreed to pay $45 million to federal and state officials after being accused by the Securities and Exchange Commission of not registering the offer and sale of its retail crypto asset lending product, termed the Earn Interest Product.
The agency announced in a statement that the lender agreed to discontinue selling the Earn Interest Product to U.S. investors and will pay $22.5 million in fines. Additionally, Nexo consented to pay an extra $22.5 million to resolve claims of a similar nature brought by state regulatory agencies.
Gurbir S. Grewal, director of the SEC’s division of enforcement, stated that the division is not concerned with the labels applied to offerings but rather with their financial realities. Adding that the federal securities laws do not exclude cryptocurrency assets.
Nexo vs SEC
The crypto lender started promoting and selling the Earn Interest Product in the United States in 2020. Investors could present their cryptocurrency to Nexo using the product in exchange for the company’s guarantee to pay interest. The product was promoted by Nexo as a mechanism for investors to earn interest.
According to the regulatory body, Nexo exercised its discretion to use investors’ crypto assets in various ways to generate revenue for its own business and to fund interest payments to EIP investors.
The crypto lender consented to a cease-and-desist order to prevent it from violating the Securities Act of 1933’s registration provisions without acknowledging or disputing the agency’s conclusions.
The Company said in a statement that the settlements were reached on a no-admit-no-deny basis. According to Kosta Kantchev, co-founder of Nexo,
“We are confident that a clearer regulatory landscape will soon emerge, and companies like Nexo will be able to offer value-creating products in the United States in a compliant manner, and the U.S. will further solidify its position as the world’s engine of innovation.”
When questioned, Nexo co-founder Antoni Trenchev stated that the funds will be disbursed over the period of one year.
Nexo announced its exit from the U.S. market in December, blaming a “dead end” in negotiations with U.S. regulators.
The unregistered offer and sale of securities to individual investors through a Gemini crypto loan scheme was charged by the SEC against Gemini and Genesis on January 12. At the time, experts opined that the charges should serve as a warning to other crypto exchanges and companies also promoting yield-bearing products.