A family of fintech entrepreneurs has sued Nexo, the major cryptocurrency exchange. The reasons seem to be related to the fact that the company blocked the withdrawal of funds and then intimidated the investors themselves to sell them to the company at a discount.
Problem for Nexo, the cryptocurrency company under the microscope
The lawsuit was filed in the High Court in London. They are three Fintech Group investors Nexus Withdrawals of more than £107 million (equivalent to approximately $126 million) of cryptocurrency were not allowed. The entrepreneurs belong to the Morton family, a well-known family of English entrepreneurs.
the brothers Jason and Owen Morton and their cousin Shane Morton, claims that Nexo froze its accounts after British investors tried to withdraw their assets. The English family, after seeing the news of the lack of transparency of many crypto firms and companies, was not sure of maintaining such a huge investment and decided to exit the investment.
In addition to Nexo’s attempt to freeze the funds, the family was also intimidated by Nexo into buying Nexo tokens from investors at a discount, according to Supreme Court documents released in statements by the Morton family.
If true, it would be very dangerous for Nexo.
Morton’s Three Investors Fund, It contained millions of pounds of cryptocurrency Nexo and Nexo Tokens and tens of millions of other pounds in Bitcoinsand Pax Gold and Stellar.
Mortons’ particular concerns were with Nexo’s structure, its regulatory status with the UK’s Financial Conduct Authority (FCA), and the extent to which Nexo employees own the pool of all Nexo tokens.
The concerns of the investing family, who have now found themselves forced to sue, were expressed to Nexo in December 2020.
But the unsatisfactory response from Nexo executives meant that in March 2021, Mortons decided and attempted to sell Nexo tokens, in order to withdraw all of their initial investment of £126 million.
However, their attempt to withdraw was bitterly obstructed, First by imposing a withdrawal limit of $150,000 per day. Later on March 23, 2021, Nexo completely banned business owners from withdrawing their assets, freezing their funds and their ability to attempt withdrawals.
Then, with vague explanations as to why the assets were being frozen, Nexo managers offered the Morten family to sell their tokens to Nexo, At 60% off its next price. The Mortens were almost forced to agree, but after some time, no doubt after hearing more legal opinions, they decided to take a case in the High Court in London.
Nexo and its products are in question because they are not a solvent
After news of the lawsuit in London, the troubles don’t end for Nexo, which this time around has gone under the radar for its cryptocurrency products. In fact, although the co-founders have already confirmed that the platform is solvent, many cryptocurrency experts have refuted these claims by declaring that Nexo and its products cannot be solvent, especially after the collapse of FTX.
Cryptocurrency analyst Dylan LeClair, primarily questioned Nexo’s rate of return relative to the average DeFi market (DeFi).
LeClair explained:
“If the return is greater than the ‘risk-free’ market price, they are by definition taking on directional risk to chase said ‘return’.
The fact that companies like CelsiusAnd the BlockFiHowever, Voyager and Vauld, who perform the same job as Nexo, become bitterly infected FTX breakdownwhile Nexo doesn’t seem to be upset, it does put the analyst in doubt.
LeClair argues that with user-backed loans, Nexo earns interest at a rate higher than the return offered. The problem here is that in a system where there is no lender of last resort, the commercial banking model on crypto trails can quickly explode. Moreover, the fact that Nexo controls more than 82% of the total token supply does not bode well for the analyst.