Crypto lender Nexo fined $45 million for violating securities law

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An SEC order claims that the company’s EIP was an unregistered security. Nexo has agreed to pay, but has not admitted fault.

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The cryptocurrency lending firm Nexo has been sanctioned by the US Securities Exchange Commission (SEC) for offering and selling unregistered securities, as part of the latest efforts by regulators to crack down on the crypto industry. Announced via an SEC press release on January 19th, Nexo has been fined $45 million for failing to register the offer and sale of a cryptocurrency lending product, Earn Interest Product (EIP), which promised returns on deposited crypto.

According to the SEC’s order, Nexo started offering the EIP around June 2020 and marketed the product as a means for investors to earn interest on their crypto assets. The agency alleges that Nexo used its investors’ crypto assets in a variety of ways, including to fund interest payments to EIP investors and to generate income for its own business. The order classes the EIP as a security and found that Nexo had failed to register the product as such with the SEC.

“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,” said SEC Chair Gary Gensler. “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.”

While Nexo hasn’t admitted fault or denied the SEC’s findings, the company has agreed to pay a $22.5 million fine to the SEC and will no longer be offering the EIP to US investors, alongside phasing out all of the products and services it offers in the United States. Nexo will also pay an additional $22.5 million in fines to settle similar charges by state regulators.

“We are content with this unified resolution which unequivocally puts an end to all speculations around Nexo’s relations to the United States,” said Antoni Trenchev, Co-founder of Nexo in a statement. “We can now focus on what we do best — build seamless financial solutions for our worldwide audience.”

The Nexo fine forms part of wider actions taken by the US to reign in misconduct within the crypto industry in recent years, exacerbated by the collapse of Sam Bankman-Fried’s FTX crypto exchange in November last year. Crypto finance institution BlockFi was charged $100 million in similar penalties in February 2022 for not being properly registered to provide investment services, and the Coinbase crypto exchange agreed to pay a $50 million penalty to the New York State Department of Financial Services for allegedly violating anti-money laundering laws earlier this month.

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