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The United States Securities and Exchange Commission (SEC) has fined Nexo Capital Inc. $45 million. The SEC explains the reason for the fine in a tweet,

Today we accused Nexo Capital Inc. of failing to register the offering and sale of its retail crypto asset lending product, the Earn Interest Product (EIP). To settle the charges, Nexo agreed to pay $22.5 million and cease its unregistered offering and sale of the EIP to US investors.

The fine of 22.5 million dollars for the sale of EIP to American investors. Additionally, the $22 million fine will go through the settlement of claims by state regulators. SEC Chairman Gary Gensler insists that crypto organizations must comply with its policies. Failure to do so will allow the SEC to hold defaulters accountable.

What is the EIP and why the fine?

As of June 2020, Nexo markets and sells its Earn Interest (EIP) product in the United States. Nexo operates in such a way as to lend money to its customers and the interest becomes its main source of income. Nexo uses this interest income to pay more interest on its loans. However, several states in the United States have alleged that Nexo’s service of interest is not registered as a title.

As a result, the states of California, Oklahoma, Vermont, South Carolina, Kentucky and Maryland sued the company. They demanded a cease and desist order on the company’s EIP service.

The SEC Order says Nexo used its EIP service to fund interest payments and inject them into its other businesses. Additionally, the SEC holds Nexo at fault because their EIP security does not meet the requirements for a regulatory authority exemption.

Even if Nexo agrees to pay the fine and stop the EIP service, they have not confirmed the allegations. In response to the sanction, Nexo also published a settlement tweet confirming that they agree to a settlement without admission or refusal.

Additionally, Nexo co-founder Antoni Trenchev says:

We are content with this unified resolution which puts an unequivocal end to all speculation surrounding Nexo’s relationship with the United States. We can now focus on what we do best: creating seamless financial solutions for our global audience.

The SEC becomes more vigilant and strict

Noting some of the SEC’s previous actions on crypto companies, it’s safe to say it’s tightening the noose. In February 2022, SEC fines BlockFi $100 million for its unregistered securities offerings. The BlockFi fine served as a warning to several other crypto companies offering similar products.

A Fondamental research finds several proceedings in which the SEC holds crypto companies accountable for their services, solutions, and actions. More than 30 such enforcement proceedings have been filed under President Gary Gensler in 2022. Similar to the Nexo case, the The SEC also accused Gemini for his unregistered service in the form of securities sales.

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