The US Securities and Exchange Commission (SEC) imposed a $45 million fine on Nexo Capital Inc. The SEC explains the reason for the fine in a tweet,
Today we are indicting Nexo Capital Inc. for failing to register the offer and sale of its retail crypto asset lending product, the Earn Interest Product (EIP). To settle the charges, Nexo agreed to pay $22.5 million and cease its unregistered offering and sale of the EIP to US investors.
The $22.5 million fine for selling EIP to US investors. In addition, the fine of $22 million will go through the resolution of the claims by the State Regulatory Authorities. SEC Chairman Gary Gensler reinforces that crypto organizations must abide by their policies. Otherwise, the SEC will be able to hold the defaulters liable.
What is EIP and why the fine?
As of June 2020, Nexo will market and sell its Earn Interest (EIP) product in the US. Nexo operates in a way that it lends money to its customers, with interest becoming its main source of income. Nexo uses this interest income to continue paying the interest on its loans. However, several US states claimed that Nexo’s interest earning service is not registered as a security.
As a result, the states of California, Oklahoma, Vermont, South Carolina, Kentucky, and Maryland took the company to court. They demanded a cease and desist order on the company’s EIP service.
He SEC order says Nexo used its EIP service to fund interest payments and inject it into its other businesses. Additionally, the SEC considers Nexo to be at fault because its EIP Security does not qualify for an exemption from the regulatory authority.
Today we are indicting Nexo Capital Inc. for failing to register the offer and sale of its retail crypto asset lending product, the Interest Earning Product (EIP). To settle the charges, Nexo agreed to pay $22.5 million and cease its unregistered offering and sale of the EIP to US investors.
— US Securities and Exchange Commission (@SECGov) January 19, 2023
Although Nexo agrees to pay the fine and stop the EIP service, they have not confirmed the allegations. In response to the sanction, Nexo also published a sale tweet confirming that they agree to a no admit, no deny agreement.
Nexo has reached a final landmark resolution with the US Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA), which consists of all 50 US states, and 3 territories and the New York Attorney General.🧵https://t.co/modjbPsOdV
— Nexus (@Nexus) January 19, 2023
Furthermore, Nexo co-founder Antoni Trenchev says:
We are pleased with this unified resolution that unequivocally puts an end to all speculation about Nexo’s relations with the United States. Now we can focus on what we do best: creating seamless financial solutions for our global audience.
The SEC is getting more vigilant and strict
Looking at some of the previous SEC actions on crypto companies, it can be said that it is tightening the noose. In February 2022, the SEC fined BlockFi $100 million for its unregistered security offerings. BlockFi’s fine acted as a warning to several other cryptocurrency companies offering similar products.
A fundamental research finds various proceedings in which the SEC holds crypto companies accountable for their services, solutions, and actions. More than 30 of these enforcement proceedings were presided over by Gary Gensler in 2022. As in the Nexo case, the The SEC also charged Gemini for its service not registered in the modality of sale of securities.
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