Allegations and penalty concerning a crypto firm

The Securities and Exchange Commission (SEC) charged lender Nexo Capital Inc. of failing to register the offering and sale of its Earn Interest Product (EIP).

Since June 2020, Nexo has been offering and selling the EIP in the United States. By buying the product, investors had to make their crypto-assets available to Nexo in exchange for the promise to pay profit in the form of interest. Nexo was using investors’ crypto-assets freely in order to generate income for its own business and to finance interest payments to EIP investors.

According to the SEC, the EIP is a security and its offering and sale was not subject to the exemption from the requirement of registration at the SEC. Nexo failed to fulfil the requirement to register the EIP before making it available to the public, and failed to meet basic disclosure requirements aimed at ensuring investor protection.

A representative of the SEC Gurbir S. Grewal commented on the Nexo case: ‘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. 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.’

Nexo has not admitted or denied the SEC’s findings but it agreed to pay the penalty of USD 45 million and to cease and desist from offering the unregistered EIP crypto-asset product.

More details about the case can be found here: https://www.sec.gov/news/press-release/2023-11

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