Crypto lending platform Nexo will pay $45 million to settle Securities and Exchange Commission allegations that it sold unregistered securities through its Earn Interest Program, the agency announced Thursday. Half of the amount will go to the SEC, and the other $22.5 million represent fines from various state-level regulators.
“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 in a statement. “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.”
As part of the SEC order, Nexo agreed to stop selling its EIP to U.S. investors. Thursday’s settlement comes little more than a month after Nexo said it would cease U.S. operations after reaching a “dead end” despite 18 months of talks with regulators.
Nexo is “content with this unified resolution, which unequivocally puts an end to all speculations around [the company’s] relations to the United States,” Nexo co-founder Antoni Trenchev said in a blog post Thursday.
The U.K.-based crypto lender began offering its EIP to U.S. customers in June 2020. Nexo tightened the product twice over the past year in the U.S. — first by voluntarily ceasing its offering to new U.S. investors in February 2022. At the time, it said it would also stop paying interest on new funds in existing U.S. EIP accounts. Then in December, Nexo announced it would be offloading EIP accounts in several states and phasing out all offerings in the U.S.
“It is now unfortunately clear to us that despite rhetoric to the contrary, the US refuses to provide a path forward for enabling blockchain businesses and we cannot give our customers confidence that regulators are focused on their best interests,” Nexo wrote last month.
The SEC order said Nexo marketed its EIP as a way for investors to earn interest on crypto and then exercised its discretion on how it would use investor assets to generate income for its own business.
Nexo is hardly the first crypto-focused company to see penalties at the hands of the SEC. BlockFi agreed in February to pay $100 million to the agency for failing to register its interest-bearing account product. The SEC last week charged crypto investment firm Genesis and crypto exchange Gemini with selling unregistered securities to investors through their joint Gemini Earn program. At issue, on a larger scale, is how the agency and companies in the marketplace define what is and is not a security.
“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,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a prepared statement. “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.”
Nexo neither admitted nor denied the SEC’s findings. In the company’s blog post, however, co-founder Kosta Kantchev struck a somewhat hopeful note that companies and regulators would find common ground.
“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, and the U.S. will further solidify its position as the world’s engine of innovation,” Kantchev said.
Eight state regulators filed administrative actions against Nexo in September. In its blog post, Nexo indicated Thursday’s settlement marked a resolution with the North American Securities Administrators Association, New York’s attorney general, the Texas Department of Banking, the Washington Consumers Services Division and the Alaska Division of Banking and Securities, in addition to the SEC.
