A week ago, Nexo’s offices in Sofia (Bulgaria) were raided. But what prompted the authorities to send 300 police officers to make a seizure? What suspicions weigh on the exchange? And why two co-founding members cannot be found? Let’s do a little provisional assessment of this affair and see if red flags are real or if it is only a politico-political affair.
Shulev would no longer be part of Nexo
Shulev has reportedly not been part of Nexo since 2019. It is unclear whether he has been charged along with the other Nexo co-founders. He was CEO of Finblox Ltd since 2021 and was replaced by his mother in December 2022. He would therefore remain Kosta Kanchev, Antoni Trenchev and one or two other people: but who? May be Alexander Pochinkova former senior official of Prokopyev’s publishing empire, Economedia? Kalin Metodiev ? Two of the defendants present in Bulgaria had to pay bail of BGN 1 million and BGN 2 million respectively (500,000 and one million euros). Rumors indicate that the fugitives would be Anthoni Trenchev and Kosta Kantchev. The Bulgarian newspaper Capital Insightswhich is part of the Economedia group, indicates that the two accused present on Bulgarian soil would indeed be Kalin Metodiev and Trayan Nikolov.
The accusations
More than 94 billion dollars is the supposed turnover of NEXO in 5 years. The co-founders of the exchange are accused of money laundering, tax evasion, computer fraud (market manipulation?) and terrorist financing. Some say it is a politico-political affair, but in reality the investigation began months ago in collaboration with foreign police forces (in particular American and British). Searches continue at at least 15 different addresses, including the United States, Dubai, the Bahamas. 20 people were questioned and are placed under protection. It turned out that some of the transactions were intended for Mohammed Mahmoud Ayesh, considered by Israel to be a terrorist. The blockchain also indicates receiving addresses to fraudulent exchanges.
Alerts or “red flags”
- Nexo has numerous subsidiaries registered in various countries, including tax havens. Most are simple “mailboxes”.
- The Nexo token, illiquid, would not be worth much. Yet it represents a very important part of Nexo’s cash. Like other CEX tokens, they are created out of thin air and can go back to nothing very quickly, like FTT.
- American regulators did not want Nexo on their soil, nor did the Cayman Islands.
- In 2019, Shulev was caught in the jam jar, arguing that pro and personal wallets often got confused.
- Banking partners of NEXO, Silvergate and Signature are or have been the partner banks of many CEXs, including FTX. Currently in the hot seat, the incriminated banks risk a lot and the dominoes have not finished falling.
- The audit firm Armanino only confirms the data provided by the Nexo team itself. There is no in-depth audit of the accounts. The data displayed on its website is therefore insufficient and may mislead investors about NEXO’s financial health.
- The NEXO team claims to have never invested in other Crypto-Ponzis (Celsius, FTX etc…), but how can Nexo offer such high returns?
- In October, Nexo withdrew the equivalent of $151 million in WBTC from MakerDao. The same maneuver as Celsius before going bankrupt…
Let’s talk about NEXO tokens
Like Celsius, FTX, Binance and the others, Nexo has created its own token. Sold as part of an ICO in 2018, Nexo would have come in for 525 million, keeping the remaining 475 million on its own balance sheet. According to US regulators, Nexo now holds ~95% of the total existing NEXO tokens on its balance sheet. etherscan confirms this claim, the main addresses of the Nexo token belong to the CEX itself. The current value is $2,807,324.50 (~1,839,09.58 Eth). We understand that if the value of the token drops, it is the exchange itself that goes bankrupt (as for FTX).
Market manipulation and illiquidity
Coinmarketcapowned by Binance, indicates that the most active platform for trading tokens is Binance itself. Quinceko indicates that the trading pairs are mainly NEXO/USDT, a stablecoin currently in the hot seat. The obvious lack of liquidity simply means that a token or coin is more or less easy to sell. If, for example, Binance delists the NEXO token, it will be difficult to get rid of it.
Very limited banking partners: Silvergate Bank (SI) and Signature Bank (SBNY)
- Silvergate Bank, which also had Binance as a partner, and other renowned platforms (including Genesis) are seeing their customers flee. It must also face controls following the bankruptcies of FTX and Alameda.
- signature bank is known in the United States for having hosted the accounts of William Landberg in 2016, convicted of a Ponzi scheme in 2016.
It is surprising that two American banks offer their services to CEX who do not have the necessary licenses to do business in the United States, but does money have a smell?
Signature Bank has a particularity: it offers a private blockchain solution called bookmark. This solution, used by Nexo, allows customers to make intra-bank transfers instantly. But Signature didn’t bother to get its solution approved by banking regulators. An oversight no doubt? Nexo had also ignored the regulations and will have to pay the price: the SEC condemned the exchange to pay a fine of $45 million.
On December 7, 2022, Senator Elizabeth Warren had written a letter to Jerome Powell and banking regulators to implicate Silvergate, Signature, Moonstone and other banks.
Read the opinion of AF law firm.
It’s pretty clear now that CEX built their empire on their own token created from scratch. Even CZ (Binance) made no secret that BUSD was not always collateralized with dollars. In short, fictitious currencies. We see that the entire ecosystem is one: same banks, same exposures. It also appears that neither the CEXs nor the “cryptofriendly” banks are very careful about the source of the funds they manage: almost all of them launder money with more or less complacency. The American authorities have shown their determination to curb this crime, which has become a plague for investors. Although it must be admitted, corruption figures are immensely higher in FIATS. Now you have the information you need to make the necessary decisions, especially since Genesis has just announced a liquidation procedure.
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