The Texas State Securities Board on Monday entered a consent order against a Cayman Islands corporation that dealt in unregistered, interest-bearing digital asset accounts.
Under terms of the order, a group of related business entities referred to collectively as Nexo Capital Inc. agreed to cease and desist from offering or selling securities “that are not registered, qualified or exempt to Texans” and to pay a fine of about $212,000 to the Securities Board and, separately, a like amount to the Texas Department of Banking.
The Texas fines are part of a settlement in which Nexo agreed to pay to pay $22.5 million, to be divided among the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands as a result of an investigation by officials in Texas, Washington, California, Kentucky, New York, Oklahoma, Indiana, Maryland, South Carolina, Wisconsin, Alabama, and Montana.
According to the Texas consent order, Nexo created “earned interest product [EIP] accounts” that promised returns of up to 36 percent to investors who loaned digital assets to Nexo to be re-invested. Those investors, the order said, “had no part in selecting, monitoring, or reviewing the revenue-generating activities” that Nexo allegedly would utilize to produce those extraordinary returns.
Nexo, the order said, “failed to disclose material information about the investment, including, but not limited to, Nexos’s EIP interest generation deployment activities, Nexo’s legal and regulatory compliance, and the limitations of Nexo’s financial representations.”
The Texas Securities Board was represented in the case by Joe Rotunda, enforcement director, and attorney Jane Lee.
Nexo was represented by a team led by Philip J. Bezanson from the Washington office of the New York-based firm of Schulte Roth & Zabel.
Rotunda said in a statement: “The market for digital assets has generated broad, widespread interest. 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.”
In an interview with The Texas Lawbook, he added: “The adage that’s been true for decades certainly continues to be true in this new era of cryptocurrencies: If an offering seems too good to be true, it probably is.”