$22.5 Million to Go to State Securities Regulators to Settle Unregistered Offer and Sale of Digital Asset Investments
WASHINGTON, D.C. – (January 19, 2023) – The North American Securities Administrators Association (NASAA) and the U.S. Securities Exchange Commission (SEC) today jointly announced that a settlement in principle has been reached with Nexo Capital, Inc. (Nexo).
In the past year, a working group of state regulators conducted a comprehensive investigation into Nexo’s alleged offer and sale of unregistered securities in the form of its Earned Interest Product (EIP). Seventeen state securities regulators have agreed to the terms of a settlement with Nexo to resolve its past unregistered activities. More jurisdictions are expected to follow.
Nexo is a Cayman Islands corporation established in 2018 that provides virtual currency-related financial services to retail and institutional borrowers in the United States, including trading, borrowing, and lending services. During the investigation, it was discovered that EIP investors could passively earn interest on digital assets by loaning those assets to Nexo. Nexo maintained total discretion over the revenue-generating activities utilized to earn returns for investors. The company offered and promoted the EIP and other products to investors in the U.S. via its website and social media channels suggesting in some instances that investors could obtain returns as high as 36%.
Nexo is alleged to have failed to comply with state registration requirements and, as a result, investors were sold unregistered securities in violation of state law and additionally were deprived of critical information and disclosures necessary to understand the potential risks of the EIP.
For the states participating in the settlement, Nexo will pay a fine of $424,528.30 and cease offering and selling the EIP or accepting further investments in the EIP until such activities are compliant with applicable state and federal securities laws.
“Our securities laws are designed to protect investors through full and fair disclosure. The registration process is essential to investor protection and states are committed to taking action when companies ignore their obligations,” said Andrew Hartnett, NASAA President and Iowa Deputy Insurance Commissioner. “State securities regulators continue to lead the effort to ensure companies involved in offering digital asset investments comply with our laws and that investors are treated fairly. We appreciate the opportunity to work with our counterparts at the SEC in reaching the settlement announced today. Working collaboratively allows us all to maximize our resources to resolve matters efficiently.”
NASAA Enforcement Committee Co-Chairs Brett Olin, Montana Deputy Securities Commissioner, and Amanda Senn, Chief Deputy Director & General Counsel, Alabama Securities Commission, commended the securities regulators from the states for their work in investigating the matter that led to the settlement of this matter.
“This settlement recognizes the important work of state securities regulators and the SEC in making sure that those who are investing their hard-earned money have all the information necessary to understand the risks and rewards of their decisions,” said Washington Department of Financial Institutions Agency Director Charlie Clark.
Organized in 1919, the North American Securities Administrators Association (NASAA) is the oldest international organization devoted to investor protection. NASAA is a voluntary association whose membership consists of the securities regulators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, the 13 provincial and territorial securities regulators in Canada, and the securities regulator in México. For more information, visit www.nasaa.org.
For More Information:
Fred Baldassaro, Director of Communications
Karen Grajales, Communications and Investor Outreach Manager