(1) Position of the Bulgarian magistracy
Nexo is a cryptocurrency exchange that, according to the Bulgarian prosecutor’s office, is allegedly acting as an organized crime ring operating from Bulgaria, Serbia and Cyprus. The company allegedly worked to set up ‘call centers’ and other customer services, with the main objective of engaging consumers and enticing them to invest in the financial products offered by Nexo, including investment in the Nexo token.
According to the Bulgarian prosecutor’s office, the combination of a Bulgarian technological structure (algorithmic software) and a Serbian infrastructure (physical call center) would have allowed the swindle of numerous victims, not only in Europe with testimonies coming from Germany, Switzerland or Austria but also for residents of Canada and Australia. This scheme would involve an amount of several tens of millions of euros. The main accusations that Nexo is facing are related to money laundering, which would have taken place in Cyprus.
On January 12, several of Nexo’s administrative sites in Bulgaria were raided by local law enforcement agencies as part of the opening of an international criminal investigation into possible money laundering, terrorist financing and other dubious or illegal activities. In this case, 17 locations were searched, including Nexo offices and private residences. According to the prosecutor, more than 20 witnesses were interviewed and are now in the witness protection program.
Four individuals of Bulgarian nationality were brought to trial during the preliminary judicial proceedings, accused of operating in an organized gang between 2018 and 2023 in various territories including Great Britain, Northern Ireland, the Swiss Confederation and the Cayman Islands. The charges relate to money laundering, tax crimes and computer fraud.
(2) Position of Nexo
On January 13, Nexo issued a press release refuting all accusations. One of Nexo’s opposition arguments is that the Bulgarian government has political and financial stakes in attacking the company. On the one hand, the case would be the result of a revenge by the Bulgarian government, corrupt and depraved according to Nexo, which would like to exploit the profits generated by the company. On the other hand, Nexo claims that the Bulgarian government is pro-Russian and that the fact that the company immediately supported Ukraine at the beginning of the war is the cause of this legal attack.
“Unfortunately, with the recent regulatory crackdown on crypto, some regulators have recently adopted the kick first, ask questions later approach. In corrupt countries, it is bordering with racketeering, but that too shall pass.”
Nexo has announced that it will take the Bulgarian government to court over what it considers to be a ‘shameful’ raid. The company seems to be confident of a favorable resolution, arguing that the only real consequence of this case will be that Bulgarian taxpayers will have to finance the reimbursement of Nexo by the government.
In other words, not only Nexo intends to obtain damages from the Bulgarian government, which would have damaged the reputation of the company and thus tainted the smooth running of its operations, but Nexo anticipates that the Bulgarian citizens will be the real victims of this case, as the reimbursement of the company will be made through the taxes set up by the government.
(3) Position of the American government
On January 19, the US Securities and Exchange Commission (SEC) reached a settlement with Nexo on the basis of ‘no admission, no denial’. Nexo agreed to compensate the SEC for USD 45 million and to stop offering its undeclared loan products to US citizens.
This means that Nexo has agreed to pay a fine, whether or not the company was responsible for what it was accused of. In this case, the U.S. government was denouncing Nexo’s high-performance products, which were allegedly offered for sale without first being registered with the U.S. regulator.
While this proceeding allows for some obscurity as to Nexo’s actual liability, we feel it is important to note that it is to the company’s advantage to accept the settlement with the SEC if it is indeed guilty of violating the law.
In the SEC’s official statement about Nexo, there is a clear mention of the company’s willingness to regulate its practices, which apparently stopped the sale of its undeclared products in the United States as of February 2022. The position taken by the SEC is that Nexo, by offering crypto products affiliated with banking products, should have and/or should act according to the regulatory framework applicable to traditional financial institutions.
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