Nexo ‘surprised’ by state regulators' actions, says co-founder

Published at: Sept. 29, 2022

Kalin Metodiev, the co-founder and managing partner of crypto lender Nexo stated his firm was “surprised” by the way in which eight state regulators publicly took action against it for securities violations.

Earlier this week the California Department of Financial Protection & Innovation (DFPI) filed a desist and refrain order against Nexo’s Earn Interest Product, claiming the company was offering a security product that had not been cleared by the government for sale in the form of an investment contract.

The DFPI also stated that it was joining regulators from seven other states in taking action against the company, including Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont.

Speaking with Cointelegraph at Token2049, Metodiev explained that Nexo was caught off guard with the latest regulatory push back, as it has been “trying to be responsible” by engaging in direct conversations with the regulators such as the Securities and Exchange Commision (SEC) for quite some time.

“We were a little surprised by this news being thrown out there in public, you know, because this isn't a process that just started this week,” he said, adding that:

“We have worked with our legal advisors in the U.S. that we have used for the last couple of years to navigate us specifically through these waters in these conversations.”

Metodiev said Nexo also communicated to the SEC earlier this year that it was “voluntarily” discontinuing services for new U.S. customers, suggesting the firm was working in good faith and aiming to be compliant with local regulations.

The product has not been available to new users in the United States since Feb. 19, and existing U.S. account holders were unable to make new deposits into their accounts.

“The event that made us make the decision was actually the SEC ruling against BlockFi in February. The moment we saw that we established contact with the SEC, and we communicated that we're voluntarily discontinuing, taking money from U.S. customers. And we haven't been working with new customers for our interest generating product.”

Ultimately this hasn’t put Nexo off over providing services in the U.S. however, as the firm will continue to remain in conversations with regulators over its crypto offerings.

Metodiev also highlighted that the company is looking at U.S. expansion through other avenues, pointing to Nexo acquiring a stake in Hulett Bancorp this week, a holding company that owns the federally chartered Summit National Bank.

Nexo has also been out on the look out for crypto company acquisitions, with Metodiev noting that the firm has had discussions with a lot of liquidity troubled firms in the bear market, even the likes of Voyager Digital and Celsius.

While he stated discussions had been going well with various firms, he didn’t provide any concrete details on any deals that could be in the works. Metodiev suggested it had been priced out of a Voyager deal, as its $1.4 billion asset valuation that FTX snapped it up for, became too high for Nexo.

“If the opportunity becomes too rich for us, as I mentioned, our risk management, kicks in and we say, you know, we're not sure that we can break even on this. We want to help the people and the platform, but at the same time, it needs to be a normal business assessment for us,” he said.