By
Andy Watson
November 15th, 2023
Nexo filed the lawsuit against the CIMA shortly after the Bulgarian police raided its office in Sofia.
Crypto lending platform Nexo has filed a lawsuit against the Cayman Islands Monetary Authority (CIMA) over rejected licensing. The crypto lending firm is fighting against CIMA’s decision to deny the company’s registration as a virtual asset service provider (VASP) in the Island country.
Nexo submitted its application for a virtual asset license to the CIMA in January 2021. Following its application, the regulator requested additional information, which the crypto lender provided. However, the agency asked for clarification on the application in October 2022. The CIMA cited “certain legal and regulatory matters as noted in the news media that Nexo did not disclose” as its reason for the request. As 2022 was coming to an end, the monetary authority rejected the application. On the 20th of December, the CIMA refused the application, informing Nexo that its business model does not meet the required risk profile. The regulator said in a filing that “Nexo posed a risk to market confidence, consumer protection and reputation of the Islands as a financial center.”
Citing the CIMA, the lawsuit also revealed that Nexo executives and shareholders failed to provide information on its potential regulatory enforcement matter in the US and proceedings in English courts.
Nexo Attacks CIMA for VASP Application Denial
In their arguments, Nexo attorneys referred to the regulator’s decision as procedurally unfair. The lawyers added that Nexo did not fulfill its constitutional and statutory responsibility by not giving Nexo a detailed reason for the application denial. The crypto lender also said that it added the regulator’s concerns during its application process.
In addition, Nexo mentioned the incidents in the UK courts, saying that the CIMA placed “too much weight” on regulators taking enforcement actions against the company. The California Department of Financial Protection & Innovation (DFPI) filed a desist and refrain order against Nexo’s Earn Interest Product in 2022. The crypto lending company wrote in its lawsuit:
“[Nexo] had diligently cooperated with all US states and federal regulatory inquiries and has been proactive in maintaining dialogue with the respective regulators […] There have been some regulatory ambiguities with respect to the laws and regulations applicable to digital assets in the US such that the fact of the regulatory enforcement itself does not connote any improper behavior.”
Nexo filed the lawsuit against the CIMA shortly after the Bulgarian police raided its office in Sofia. The law enforcement stormed the office on the 12th of January on charges of “organized crime, money laundering, tax evasion, banking activity without a license, and computer fraud.”
The raids came after the company revealed plans to exit the US market. Eight US regulators across different states had accused Nexo of not registering its Earn Interest Product. Commenting on its plans to cease operations in the US, Nexo said:
“It is now unfortunately clear to us that despite rhetoric to the contrary, the US refuses to provide a path forward for enabling blockchain businesses, and we cannot give our customers confidence that regulators are focused on their best interests.
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