Nexo to Pay $45 Million in Penalties and Cease Unregistered Offering of Crypto Asset Due to SEC Charges

Nexo Capital Inc. has been charged by the Securities and Exchange Commission (SEC). Nexo was accused of failing to register its offer and sale for its retail crypto asset loan product, the Earn Income Product (EIP). Nexo agreed to pay $22.5 million in penalties and to cease the unregistered sale and offer of the EIP to U.S. buyers. The company also agreed to pay $22.5million in additional fines to resolve similar charges from state regulatory authorities.

According to the SEC’s order, in or around June 2020, Nexo began offering and selling the EIP in the United States. In exchange for the promise of interest, U.S. investors could lend their crypto assets and loan them to Nexo. The SEC determined that the EIP is security and that its sale and offer were not eligible for exemption from SEC registration. Nexo was therefore required to register the sale and offer of the EIP. This it did not do.

The Commission considered the remedial actions taken by the company as well as its cooperation with Commission staff when it agreed to settle with them. Specifically, the SEC’s order notes that, after the Commission announced charges involving a similar crypto investment product in February 2022, Nexo voluntarily ceased offering the EIP to new U.S. investors and ceased paying interest on new funds added to existing EIP accounts of U.S. investors. The company also announced in December that it would cease offering the EIP to all U.S. customers and phasing out all other products and services.

SEC Chair Gary Gensler stated, “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. Compliance with our time-tested public policies isn’t a choice. We will continue to enforce the law and follow the facts if crypto companies don’t comply. In this case, among other actions, Nexo is ceasing its unregistered lending product as to all U.S. investors.”

Without admitting or denying the SEC’s findings, Nexo agreed to a cease-and-desist order prohibiting it from violating the registration provisions of the Securities Act of 1933. The SEC’s investigation was conducted with assistance from members of the North American Securities Administrators Association.

The SEC’s Office of Investor Education and Advocacy and Enforcement’s Retail Strategy Task Force has previously issued an Investor Bulletin on Crypto Asset Interest-bearing Accounts. Investors may find more information on crypto assets at Investor.gov.