Crypto lending giant Nexo saw its offices in Sofia, Bulgaria raided on Thursday, and the firm’s customers now appear to be clawing for their money back.
Prosecutors are investigating the firm for a range of crimes related to money laundering, tax offenses, and more.
More Trouble for Nexo
On January 12, the Bulgarian Prosecutor’s Office stated that over 300 are involved in Nexo’s Sofia office. Nexo is a lending firm that lets users earn interest by depositing assets with the platform, or receive cash loans by posting crypto collateral.
“Active investigation actions are underway in the capital to neutralize illegal criminal activity of the Nexo crypto bank,” said a rough translation of the office’s statement.
The officials claim to have evidence that at least one know terrorist financier has used Nexo to transfer his funds.
Cryptocurrencies have been on notice since early 2022 for their potential use in terrorist financing and sanctions evasion, particularly following Canada’s Freedom Convoy protest and Russia’s invasion of Ukraine. Scrutiny of the industry worsened across the board after FTX’s blowup in November, with federal regulators across jurisdictions cracking down with multiple lawsuits and investigations.
Nexo responded to the investigation over Twitter, emphasizing its commitment to sanctions and AML compliance. It claimed to have over 30 AML compliance officers tracking OFAC sanctions lists, the flow of funds, and adverse media publications to ensure it didn’t involve itself with the wrong parties.
“Unfortunately, with the recent regulatory crackdown on crypto, some regulators have recently adopted the kick first, ask questions later approach,” stated Nexo. “In corrupt countries, it is bordering with racketeering, but that too shall pass.”
The prosecutor’s report also suggested that Nexo was linked to Ruja Ignatova – a crypto fraudster and member of the FBI’s most wanted. She founded the crypto ponzi scheme OneCoin, which used an MLM model to rapidly recruit others into purchasing cryptocurrency packages.
Nexo has already been forced to terminate operations in the United States after compliance with securities regulators proved too difficult for the firm.
Withdrawals Run Rampant
Nexo is one of the major lending firms to not collapse or freeze withdrawals after 2022’s market bloodbath, which wiped out competitors like Celsius, Voyager, and BlockFi. Panicked investors withdrawing money from those firms in times of turmoil has only added to their troubles.
On-chain data presented by crypto intelligence provider Arkham suggests that these pressures are starting to hit Nexo. “Floods of outflows seen from Nexo wallet addresses on-chain,” it stated. “Stay safe.”
Another on-chain analysis firm, Cielo Finance, had the same finding.
💸 Large Nexo withdrawals and movements right now.
👀👀 https://t.co/Dy2UsASler pic.twitter.com/FY2dgrZ52m
— Cielo (@CieloFinance) January 12, 2023
Unlike exchanges, crypto lending firms are structurally designed to use a fractional reserve model, making them prone to bank-run-like catastrophes. Similar firms fearing such an event in 2022 often froze user withdrawals when their balances ran too low, which frequently culminated in bankruptcy.
Genesis is currently under fire for not letting its clients withdraw their funds – particularly from Gemini co-founder Cameron Winklevoss.