Nexo agreed to pay $45 million to federal and state agencies after being charged by the Securities and Exchange Commission for failing to register the offer and sale of its retail crypto asset lending product, called the Earn Interest Product.
The lender will pay $22.5 million in penalties and agreed to cease the sale of the Earn Interest Product to U.S. investors, the agency said in a statement. Nexo also agreed to pay an additional $22.5 million to settle similar charges made by state regulatory authorities.
“We are not concerned with the labels put on offerings, but on their economic realities,” said Gurbir S. Grewal, director of the SEC’s division of enforcement. “Crypto assets are not exempt from the federal securities laws.”
In 2020, Nexo began to offer and sell the Earn Interest Product in the U.S. The product allowed investors to tender their crypto to Nexo in exchange for the firm’s promise to pay interest. Nexo marketed the product as a way for investors to earn interest and “Nexo 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 agency said.
Without admitting or denying the agency’s findings, Nexo agreed to a cease-and-desist order to block it from violating registration provisions under the Securities Act of 1933.
In a statement, Nexo said the settlements are on a no-admit-no-deny basis.
“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,” said Kosta Kantchev, co-founder of Nexo in a statement on Thursday.
When asked, Antoni Trenchev, co-founder of Nexo, said that the payments will be distributed over a one-year period.
Nexo said it was leaving the U.S. market in December, citing a “dead end” in talks with U.S. regulators.
The SEC charged Gemini and Genesis on Jan. 12 for the unregistered offer and sale of securities to retail investors through a Gemini crypto lending program. Experts said at the time that the charges were a warning signal for other exchanges and actors in the crypto space that also are offering yield bearing products.
Update: This story was updated with comment from Nexo.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.