Crypto lender Nexo has started a legal battle seeking $3 billion in damages from Bulgaria following an aborted criminal investigation that the company claims derailed its plans for a US stock market listing and a soccer sponsorship deal.

Nexo AG, a Swiss subsidiary of Nexo Capital based in the Cayman Islands, alleges that the investigation severely damaged its reputation and resulted in a significant loss of shareholder value, Reuters reported Wednesday. 

The case has been registered with the International Centre for Settlement of Investment Disputes (ICSID), a Washington-based international arbitration institution that handles disputes between global investors and states.

While the ICSID has acknowledged the registration of the case, specific details regarding the requested damages or other aspects have not been confirmed by an ICSID spokesperson.

The Bulgarian Ministry of Finance confirmed receiving the arbitration request from the ICSID, stating that it would be reviewed by an inter-departmental committee specializing in such matters, which would propose the subsequent steps.

However, the ministry emphasized that the receipt of the request should not be considered an admission of the claims or an acceptance of the arbitral jurisdiction.

The Bulgarian prosecutor’s office, also named as a respondent in the case, has not yet responded to requests for comment.

Bulgaria Started an Investigation into Nexo in January 2023

In January 2023, Bulgarian prosecutors initiated an investigation into Nexo AG, conducting raids in Sofia and charging the company’s founders with various offenses, including participation in an organized crime group to commit money laundering, tax fraud, and computer fraud. The crackdown led to mass fund withdrawals from the platform.

Nexo, which was raided earlier this morning, is currently getting hit by withdrawals

Its tagged on-chain wallets on EVM chains are down to <$70M in stables and $15M in ETH/sETH. The one tagged bitcoin address I can find has $5M

Its website lists 2.4B in customer liabilities pic.twitter.com/D0NBfBR96G

— Conor (@jconorgrogan) January 12, 2023

However, the case was dropped last month due to a lack of evidence of criminal activity, with prosecutors citing the absence of a legal framework for crypto asset services in Bulgaria.

Nexo, co-founded by former Bulgarian lawmaker Antoni Trenchev, consistently denied any wrongdoing and alleged that the investigation was politically motivated.

Prosecutors have refuted this allegation, as reported by local news agency BTA. 

While regulatory authorities worldwide, including in the United States, have intensified efforts to combat illicit activities in the crypto industry, it is relatively uncommon for a crypto firm to pursue compensation from a country for a dropped investigation.

The ICSID has previously issued orders for countries like Pakistan, Ecuador, and Venezuela to pay substantial damages to companies involved in similar disputes.

In an interview with Reuters earlier this month, Trenchev declined to disclose the banks involved in the planned listing or the European soccer club with which sponsorship discussions were held.

Crypto lenders such as Nexo serve as banking counterparts in the crypto world, offering interest to customers on the cryptocurrencies they deposit on the platform.

Founded in 2018, Nexo ceased its operations and services in the United States last year and agreed to pay $45 million to settle charges brought by the U.S. Securities and Exchange Commission and state regulators for failing to register its crypto asset lending product.

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