(CMR) A company that has cease-and-desist proceedings against it in the United States and a fine of $22.5 million has filed a lawsuit against the Cayman Islands Monetary Authority (CIMA) for rejecting its application to be registered as a “virtual asset service provider.”
According to court documents filed in the Grand Court on 12 January, Crypto lender Nexo Capital Inc. applied for an order that CIMA’s decision is reversed, a declaration that Nexo is suitable to be registered, and an order for the Authority to register the company as a virtual asset service provider.
However, Offshore Alert reported that on the same day, Nexo Capital was filing court documents to have CIMA's decision reversed, police in Bulgaria – where Nexo originated – raided the group’s offices in Sofia and criminally charged four unidentified representatives with money laundering, tax crimes, and computer fraud regarding alleged conduct in Bulgaria, Cayman Islands, Switzerland, and the United Kingdom.
On Thursday, 19 January, the US Securities and Exchange Commission instituted public cease-and-desist proceedings against Nexo Capital Inc. and ordered that the Cayman-registered company pay a civil money penalty of $22.5 million.
According to Offshore Alert, in September of last year, eight US states issued cease-and-desist orders or brought other types of proceedings against Nexo Capital Inc. and Nexo Inc., which are both domiciled in Cayman, while Delaware-domiciled Nexo Financial LLC and Nexo group co-founder Antoni Trenchev, a former member of Bulgaria’s parliament, were also respondents in some actions.
The state regulators accused the Nexo group of selling unregistered securities in the form of its ‘Earn Interest Product’, allegedly soliciting investors “with promises of interest rates of up to 12% to 36%”, according to a complaint filed by New York’s Attorney General at New York Supreme Court. The US actions prompted the Nexo group to announce on December 5th, 2022, its “gradual departure from the United States”.
In court documents filed in the Cayman Islands Grand Court, Nexo is described as “a non-bank financial institution and one of the world's largest lending companies for overcollateralized digital asset-based credit products and provides high-yield ‘Earn Interest’ products which allow its customers to up certain digital assets in interest-yielding accounts. “
Nexo said CIMA failed to notify the company of the entirety of the reasons for its refusal decision. The Refusal Decision states that, upon the Authority taking into consideration the matters set out in section 22 of the Act when reaching its decision, it has determined that the Applicant's proposed business model does not meet the required risk profile for the purposes of the Act.
Some of the reasons listed include the size, scope, and complexity of Nexo’s proposed business model; the risk the business poses to market confidence, consumer protection, and the reputation of the Islands as a financial center; failure by the directors and ultimate shareholders to disclose to the Authority the potential regulatory enforcement matters in various states in the United States and proceedings in the High Court of Justice of England & Wales; and the impact the proposed product offering may have and risks it may pose to existing clients, further clients, other licensees or to the financial system of the Cayman Islands.
However, Nexo said the Refusal Decision is not “reasons”. Instead, they are a simple recitation of the factors prescribed by section 22 of the Act by which the Authority was required to assess the Application.