Arkansas to receive $424,000 in cryptocurrency settlement
The Arkansas Securities Department (ASD) recently issued a consent order against the cryptocurrency platform Nexo Capital Inc. (Nexo), regarding unregistered offers and sales of securities in the form of digital asset investments.
Nexo, a Cayman Islands corporation established in 2018, provides crypto-asset-related financial services including investing, trading, borrowing, and lending, to retail and institutional customers in the United States.
A North American Securities Administrators Association (NASAA) working group of state securities regulators led a comprehensive investigation into Nexo’s Earn Interest Product (EIP) program. During the investigation, it was discovered that EIP investors could passively earn interest on digital assets by loaning those assets to Nexo. At all times, Nexo maintained total discretion over the revenue-generating activities utilized to earn returns for investors. Nexo offered and promoted the EIP and other products to investors in the U.S. on its website and social media sites suggesting in some instances that investors could obtain returns as high as 36%.
Nexo was alleged to have failed to comply with state registration requirements and, as a result, Arkansas investors were sold unregistered securities in violation of Arkansas law and additionally were deprived of critical information and disclosures necessary to understand the potential risks of the EIP.
Between about June 17, 2020, and December 6, 2022, Nexo offered and sold its EIP accounts to new or existing Arkansas investors. As of July 31, 2022, Nexo had 93,318 EIP investors in the U.S. with a total asset value of over $800 million. There were approximately 292 Arkansas investor EIP accounts with a total asset value of approximately $3.09 million.
Nexo agreed to pay $22.5 million to settle the allegations with the 53 U.S. NASAA-member jurisdictions and will pay a fine of $424,528.30 to the Arkansas Securities Department. Further, Nexo will 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. Nexo’s agreement to enter a settlement with the ASD comes after Nexo announced that it would phase out its products and services in the U.S. before April 1, 2023.
“All financial services companies, including new companies offering services for crypto assets, must comply with Arkansas’ investor protection laws,” said ASD Interim Commissioner Campbell McLaurin. “This collective action by state regulators demonstrates to other companies offering similar digital products and services the importance of bringing their business activities into compliance with securities laws in Arkansas.”