Nexo Files $3B Claim Against Bulgaria

A Brief Background of the Dispute

1. Nexo, a prominent company in the cryptocurrency lending, storage, and trading sector, was established in 2018. With its headquarters in Zug, Switzerland, and registration in the Cayman Islands, Nexo has garnered over 4 million users globally and manages assets worth over $10 billion.
2. The case against the company's leadership commenced with the Bulgarian prosecutor's office on January 13, 2023, involving financial experts from the USA and the UK.
3. The company's leadership faced allegations of laundering money (including Russian funds) and evading taxes amounting to approximately $1.2 billion, in addition to being accused of forming a criminal group of computer fraudsters.
4. Raids were conducted at Nexo's offices in Sofia and Zug, and the apartments of its employees.
5. Two senior employees were detained, each facing a $500,000 bail.
6. The case was dismissed on January 23, 2024, due to lack of evidence.

Merely two days after the closure of the “Bulgaria vs. Nexo” case, news broke that Nexo’s management decided to reopen the legal proceeding, shifting from a defensive to an offensive legal stance. 

Impact on Nexo's Reputation

Nexo filed a claim for compensation, arguing that the investigation was unjustified and politically motivated. The Bulgarian law enforcement's actions had sullied the company's reputation, leading to a $3 billion loss due to missed business opportunities. The lawsuit references several projects close to fruition:

• Listing of Nexo Capital's shares on the American stock exchange;
• A sponsorship deal with a major football club;
• Major updates scheduled for the platform.

The lawsuit also notes that the actions of law enforcement adversely affected the value of the company’s shares and the NEXO platform token. 

The case against Bulgaria was brought before the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank.

Investigation Overview

In January 2023, amidst police raids in Sofia and charges against its leadership, Nexo had just completed a major funding round with three American banks and was in preliminary talks for an IPO on Nasdaq. However, these plans, poised for a company valuation exceeding $5 billion, were shelved due to the legal proceedings.

Additionally, as part of a strategic deal with a leading European football club, Nexo was set to launch a cryptocurrency bank card featuring the club’s logo, but this initiative was also disrupted.

After months of surveillance, arrests, interrogations, and judicial checks, law enforcement admitted they couldn't substantiate the money laundering and tax evasion accusations against Nexo's founders. In Nexo's defense, the Bulgarian prosecution noted that virtual assets are not recognized as money, deposits, or other reimbursable funds in any EU country, preventing the application of standard tax evasion investigation practices to this case. 

An international financial audit found no evidence of illegal funds being laundered through the platform, nor could the police provide factual evidence for the cyber fraud group organization allegations.

What Lies Ahead?

If successful, the lawsuit could lead to full compensation for Nexo. Even a partial victory would set a precedent, potentially making regulators more cautious in the future.

“By means of the lawsuit for compensation, we hope to show those in power that their actions have consequences, and we hope to prevent unnecessary destruction of values in the future,” Nexo's co-founder, Antoni Trenchev, told the press.

Antoni Trenchev. Source: trud.bg

Trenchev asserts that the investigation and the raids on the company's offices were politically motivated from the outset, intending to smear the reputation of an opposition political party that had received donations from several Nexo employees. 

“In fact, this is not a lawsuit against Bulgaria, but a struggle to ensure that the politically colored and unfair actions that were applied to us do not repeat themselves with others,” Trenchev stated.

However, doubts linger about the lawsuit's potential success. It would require officially confirming that the Bulgarian regulators' investigation, not market conditions, impacted the company's asset value and solely tarnished the founders' reputation.

Further complicating the case, Trenchev & Co face issues beyond Bulgaria. The company has been banned from operating in New York State for 5 years and has attracted suspicion from regulators in 8 other US states. Nexo also faced lawsuits from the SEC, resulting in a $45 million fine for trading unregistered securities.