Attorney General Alan Wilson announces $45 million settlement with financial services company Nexo for sales of unregistered securitiesJanuary 27, 2023
Attorney General Alan Wilson announced today that digital-asset financial services companies, Nexo Inc. and Nexo Capital Inc. (collectively, “Nexo”), have settled allegations they broke South Carolina law by offering and selling unregistered securities.
“We continue to investigate other digital asset financial services companies that may have failed to comply with South Carolina law,” said Attorney General Wilson. “Firms that need to register and deal with past unregistered activity should contact the Attorney General’s Office.”
Nexo entered into a Consent Order with the Securities Division of the South Carolina Attorney General’s Office (the “Division”). Today’s agreement will resolve an Order to Cease and Desist filed by the Division against Nexo on September 26, 2022.
Nexo agreed to pay $22.5 million to the 53 North American Securities Administrators Association member jurisdictions and $22.5 million to the U.S. Securities and Exchange Commission. The 53 NASAA member jurisdictions will share equally in their half of the settlement, with each receiving approximately $424,500.
The Division has been part of a working group of state securities regulators investigating Nexo over the past year. The group looked into Nexo’s possible offer and sale of unregistered securities in the form of interest-bearing digital asset accounts called the Earn Interest Product (EIP). The EIP allowed clients to deposit and lend digital assets to Nexo, in exchange for earning interest on those deposits. Interest rates reached up to 36% on the deposited digital assets, significantly higher than rates offered for short-term, investment grade, fixed-income securities or bank savings accounts.
In offering its EIP, Nexo failed to disclose information about the investment, including, Nexo EIP’s interest generation deployment activities, Nexo’s legal and regulatory compliance in South Carolina, and the limitations of Nexo’s financial representations.
As of July 31, 2022, Nexo had 93,318 EIP investors in the US with a total asset value of approximately $800 million, of which more than 1,150 were South Carolina residents with a total asset value of approximately $7.3 million.
In addition to the monetary settlement, Nexo agreed that it will cease and desist from offering its EIP unless properly registered or exempt. It also agreed to notify EIP account holders on or before February 1, 2023, that investors should withdraw any assets from their accounts before April 1, 2023. Nexo also agreed to segregate U.S. investor assets, recognize that U.S. investors hold legal title to those assets, and not lend, stake, or otherwise use those assets in risky speculative activities.
The Attorney General’s Office would like to thank other securities regulators of the NASAA working group, specifically the state securities regulators in Washington, California, Indiana, Kentucky, Maryland, New York, Oklahoma, Vermont, and Wisconsin, for their coordinated efforts and contributions to this multistate investigation.
The Securities Division can be reached by calling 803-734-9916 or by email to [email protected]. Investors can submit a complaint or learn more about the Securities Division by visiting the Attorney General’s Office website at https://www.scag.gov/inside-the-office/legal-services-division/securities/.