SEC to Nexo: Register the Assets
The Securities and Exchange Commission and state regulatory authorities both charged Nexo Capital Inc. (Nexo) with selling an unregistered security. As such, Nexo has agreed to pay a total of $45 million for the unregistered sale of its crypto asset lending product, the so-called Earn Interest Product (EIP). The SEC order found that the EIP is a security and did not qualify for any of the exemptions of the registration requirement under the Securities Act of 1933.
The global reach of Nexo is enormous. Nexo utilizes blockchain technology to manage digital assets for over 5 million users in over 200 jurisdictions around the world. Suffice to say, the SEC ordering this penalty for this lending institution will cause ripple effects and will cause more digital asset institutions to look at their unregistered assets when it comes to the SEC.
Nexo ceased the sale of its EIP after the SEC charged BlockFi for the unregistered sale of BlockFi’s own crypto asset lending product in February of 2022. When the corporation ceased to offer the EIP to U.S. investors and stopped paying interests on new funds of existing EIP accounts, the SEC considered these “remedial acts” of Nexo. Because the SEC considered these “remedial acts” when it comes to the penalty imposed on Nexo, there is room to believe that the penalty could have been harsher if Nexo continued to sell the EIP.
The Director of the SEC’s Division of Enforcement, Gurbir Grewal, had choice words for the crypto industry when he said that the “reality is that crypto assets are not exempt from the federal securities laws” and that “we expect compliance.” Grewal’s words have at an undertone of frustration related to the unregistered sale of crypto assets and the confusion that the crypto industry has brought when it comes to the definition of what a “security” is or is not.
It is crystal clear: the SEC continues to be serious about industry self-compliance with existing securities, regardless of the change of form in crypto markets. Despite ceasing EIP sales, Nexo received a significant fine. Nexo has a slogan on its website of “disrupting the financial system, one bit at a time.” For now, SEC has no problem curbing the disruption of the financial system, especially when it comes to the crypto industry.
What kind of lawyer would I be without a disclaimer?
Everything I post here constitutes my own thoughts, should only be used for informational purposes, and does not constitute legal advice or establish a client-attorney relationship (though I am happy to discuss if there is something I can help you with). I can be reached via email at david@bsl.group, on telegram @davidlopezkurtz on twitter @lopezkurtz and on LinkedIn here.
