The Securities and Exchange Commission (SEC) and separately, ten state attorneys general announced agreements with Nexo Inc. and Nexo Capital Inc. (together, Nexo) resolving allegations that the cryptocurrency company sold securities without registering them and lied to investors about their registration status.
To end the SEC’s probe, Nexo agreed to pay $22.5 million and to the attorneys generals of New York, California, Indiana, Kentucky, Maryland, Oklahoma, South Carolina, Vermont, Washington, and Wisconsin, another $22.5 million, plus $1.5 additional to New York.
According to the SEC, Nexo began selling the Nexo Earn Interest Product (EIP) in 2020. The EIP allowed investors to tender to Nexo certain crypto assets, which Nexo deposited in interest-yielding accounts and then used to generate income for its own business and to fund interest payments to EIP investors. As of March 2022, the company had about 110,000 U.S. investors from whom it had raised $2.7 billion.
The problem, regulators said, is that EIPs qualify as securities, but were never registered as such and did not qualify for an exemption.
“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,” Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in a statement. “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.”
In addition to the monetary penalties, and without admitting or denying fault, Nexo agreed not to sell securities for agreed-to time periods and to refrain from further unlawful conduct under state and federal law.