Nexo is suing Bulgaria for over 3 billion dollars

The arbitration case of the Nexo crypto bank against the Bulgarian state, as well as against the country’s prosecutor's office and Ministry of Finance has a claim of over 3 billion dollars. This was officially announced by the company, which is co-owned by Antoni Trenchev, a former Bulgarian MP from the Reformers Bloc party. The company states that the authorities’ legal action has resulted in a failure to list Nexo on one of the major US stock exchanges and conclude a sponsorship deal with a football team.

The amount of the arbitration claim is determined by the significant pecuniary and reputational damages resulting from the actions of the government authorities during the now closed, oppressive investigation against the company, its employees and executives," Nexo said in a statement.

Nexo AG, which is the Swiss branch of the Cayman Islands-based Nexo Capital, said the investigation damaged its reputation and destroyed shareholder value, according to a filing with the World Bank's International Center for Settlement of Investment Disputes (ICSID).

The news about the case was first announced by Bird (an investigative journalist blog), but the information about the financial amount of the lawsuit was only officially published today.

Trenchev threatened the Bulgarian state with a lawsuit immediately in his first public statement after the investigation against the company was launched. Last year, he commented that the reputational damage from the actions of the prosecutor's office is estimated at more than 1 billion dollars. A year later, the threat has turned into a reality and Nexo's financial claims for retribution have expanded even more.

You might recall that last January the Bulgarian police, gendarmerie and national security agents (DANS) stormed the Nexo offices in the country in a showy and much-publicized raid. In the days that followed, details of the "unique on a world scale" investigation emerged - in the words of the (now dismissed) Bulgarian general prosecutor Ivan Geshev. Back then, the state prosecution boasted of working in conjunction with other countries’ police agencies and Interpol.

The founders and some of the senior managers at Nexo were charged with money laundering and tax and computer fraud, including providing banking services without the necessary license. There were even insinuations about links to the Palestinian terrorist group Hamas.

11 months later, however, the Bulgarian prosecutor's office (led by a new general prosecutor) announced that it had found no evidence of crimes and closed the criminal proceedings in the "Nexo case".

Nexo v. Bulgaria

The arbitration claim was filed on 18 January 2024 at the secretariat of the International Center for Settlement of Investment Disputes (ICSID) of the World Bank in Washington, DC, in line with international investment protection agreements.

At the trial, Nexo will be represented by the US law firm Pillsbury Winthrop Shaw Pittman LLP.

Having studied the case in depth, we believe in the strength and future success of Nexo's claim," commented Matthew Oresman, managing partner of Pillsbury LLP's London office.

The Bulgarian authorities targeted investigation caused "colossal damage to Nexo's operations and international reputation," the company said. "The company's investments in Bulgaria suffered large losses, and significant business opportunities on a global scale were lost."

Nexo claims that as a result of the punitive action, it had to suspend joint work with three of the largest American investment banks regarding the initial public offering of the company's shares on a major stock exchange in the United States.

The valuation of Nexo, given by these banks at the time, was between 8 and 12 billion US dollars,” the crypto lender added in its statement.

Another example of lost opportunities was the failure to "sign a long-term cooperation deal between Nexo and one of the most popular European football clubs". The statement also points out "the tarnished name and reputation of Nexo and its employees".

Despite these reputational damages and lost profits, the company emphasizes that it has managed to preserve its business operations.

Nexo, founded in 2018 by the Bulgarians Kosta Kanchev and Antoni Trenchev, developed rapidly in just a few years against the background of the cryptocurrency boom. The business managed to become one of the most successful globally in the field of crypto lending. In recent years, however, regulators have begun to take a closer look at the sector and take steps to tighten controls.

In 2022, eight US state regulatory agencies charged Nexo Group with alleged wrongdoing. The reason for their actions was a financial product that appeared to bring interest to customers while in practice acted as securities, though it was not registered as such.

Nexo phased out its products and services in the U.S. last year and agreed to pay 45 million dollars to settle allegations by the U.S. Securities and Exchange Commission and state regulators that it failed to register its product for crypto asset lending.

Nexo promises to donate up to 20% of the compensation received to children’s healthcare and education.

Translated by Tzvetozar Vincent Iolov