On April 17, 2023, the Texas State Securities Board entered a final order against Nexo Capital Inc. (“Nexo”). Nexo was organized as a Cayman Islands corporation and dealt in interest-bearing digital asset accounts. Clients invested in the accounts by lending digital assets to Nexo, and Nexo afforded complete discretion in using their digital assets to generate revenue. In exchange, Nexo promised to pay lucrative returns to investors – in at least one instance, the returns may have been as much as 36%.
The settlement requires the firm to cease and desist from offering or selling securities that are not registered, qualified or exempt to Texans. Nexo also agreed to pay a fine of approximately $212,000 to the Texas State Securities Board and, in a separate action, a fine of approximately $212,000 to the Texas Department of Banking.
The order was the product of an investigation conducted by state securities regulators in Washington, California, Kentucky, New York, Oklahoma, Indiana, Maryland, South Carolina and Wisconsin. The investigation was coordinated by the North American Securities Administrators Association (“NASAA”), and assisted by regulators from Alabama, Montana and Texas that lead the NASAA Enforcement Section Committee. Earlier this year, the state regulators negotiated a settlement in principle that contained the key terms of today’s order and requires Nexo to pay $22.5 million in fines to state securities regulators.
“Blockchain technology continues to present exciting opportunities and applications for many industries. However, compliance with applicable securities laws is always required regardless of the form those securities take and is vitally important to protect Texas investors and preserve confidence in the markets,” said Securities Commissioner Travis J. Iles.
The Texas State Securities Board continues to serve as a leader in protecting investors from illegal and fraudulent digital asset securities schedules. In 2017, the agency filed the first state securities enforcement action to stop the fraudulent sale of securitized digital assets. More recently, the agency coordinated the state settlement with BlockFi Lending LLC, and filed enforcement actions to protect Texans from promoters accused of illegally and/or fraudulently dealing in similar instruments, including Voyager Digital Ltd., Celsius Network, and Celsius ex-CEO Alexander Mashinsky. It continues to advocate for investors in bankruptcy proceedings initiated by various firms allegedly promoting digital asset depository accounts.
“The market for digital assets has generated broad, widespread interest,” said Enforcement Director Joe Rotunda. “We continue to encourage investors to conduct thorough due diligence before investing – regardless of whether the product is a traditional security like stock, or a new instrument tied to cryptocurrencies.”
Jane Lee, Enforcement Attorney, and Joe Rotunda handled the case on behalf of the Texas State Securities Board. The agency recognizes the hard work and expertise of other state securities regulators, including agencies in Washington, California, New York, Kentucky, Maryland, Wisconsin, South Carolina, Oklahoma, Vermont, Wisconsin and Indiana and also the Texas Department of Banking for bringing this matter to an investor-friendly resolution.
Contact: Joe Rotunda, Enforcement Director (email@example.com) and Jane Lee, Enforcement Attorney (firstname.lastname@example.org).