As authorities raid the Bulgarian office of embattled crypto lender Nexo, accusations made in a leaked email from three years ago offer a glimpse into its downfall of today.
As Nexo faces investigations from all angles of the regulatory lens, did an email sent from one of its estranged co-founders back in 2020 try to raise the alarm?
Crypto lender Nexo becomes the latest industry player to fall into deep water amid a thorough probe by international regulators for alleged illegal activities.
Most recently, the US Securities and Exchange Commission (SEC) fined Nexo a total of $45million for failing to register the offer and sale of its earn interest product (EIP).
Back in the company’s home base in the Bulgarian capital Sofia, the picture is equally as bleak. On 12 January, no less than 300 investigators, police officers and security officers raided 15 of the firm’s sites.
This was on the grounds of investigating the setting up of an organised crime group, tax crimes, money laundering, banking activity without a licence and computer fraud.
These are very serious allegations, and an email translation seen by The Fintech Times could indicate that they might ring true.
The child who is not embraced by the village will burn it down to feel its warmth. And the heat now surrounding Nexo might have first been ignited in an email sent from Nexo co-founder Georgi Shulev to the firm’s management back in 2020.
Shulev’s email makes three main accusations, all of which are targeted at Nexo’s co-founder Kosta Kantchev, with who Shulev founded the company in August 2017. Adjoining co-founders, Antoni Trenchev and Kalin Metodiev, are also partners in the company.
These accusations claim gross company mismanagement, rampant illegal activity and the prevalence of schemes for abuse.
Locked out and out of pocket
The first accusation is that Kantchev has seized Shulev’s proportion of the company’s shares. Shulev explains that he agreed to split the shares with Kantchev equally upon the company’s launch.
Additionally, Nexo promised equity shares to Cedissimo co-founder and CEO Sokol Iankov, as a legal entity. Trenchev, Metodiev, as well as some members of the company’s management, were also due to receive these shares. Yet Shulev confirms that “these promises were never fulfilled” despite “multiple occasions” to address the issue.
Shulev also refers to an email sent by Iankov to management on 5 June 2020. In this email, Iankov informs management that Kantchev had defrauded the deal.
It is unclear whether Trenchev and Metodiev received their shares, although the email indicates clear concern.
“The company continues to run with Kosta as the sole owner,” the email continues.
Prior to this, Shulev arranged a meeting with Kantchev on 21 August 2019. This meeting was to discuss the allocation of shares to their rightful recipients.
“During the conversation, when we got to how these promised shares would change our original 50/50 allocation, Kosta reneged on our initial agreement and said it implied he should be on a yacht rather than in the office,” Shulev’s email says. “He unequivocally indicated that maintaining our equal shares is no option for him.”
Shulev indicates that Kantchev evaded any further discussion regarding the distribution of the remaining shares, instead ending the meeting and leaving the very next day.
Two weeks later, Kantchev allegedly returned to the office “as if the conversation had never taken place.”
It is a week after Kantchev’s return, on 13 September, that Shulev states he lost access to the company completely. This included access to his emails, accounts and funds.
Shulev includes that following this, he repeatedly tried to contact Kantchev, Trenchev and Metodiev regarding the matter but to no avail.
He recognises that Kantchev’s previous plot to fire Metodiev in a similar way has now become his reality.
“In this way,” Shulev continues, “Kosta took hold of my share and, to this day, refuses to discuss the subject of bringing it back to me or providing compensation. I guess that, to this day, he is the only person who has shares in Nexo, a company that actually owns anything.”
The second accusation made in Shulev’s email is even more alarming than that concerning its internal power struggles.
Shulev claims that the firm conducts unlaw activities on a daily basis, in Bulgaria and in numerous other jurisdictions. This would indicate that Nexo is using its clients’ assets without their knowledge; as Shulev’s email puts forward.
He suggests that Kantchev is using employees in operations for actions that are illegal. Yet no mention of these activities appears in previous regulatory investigations.
“Unfortunately, a great number of highly intelligent people who give their best to constantly improve their skills still work at the company,” the email reads. Shulev says employees unknowingly engage in daily illegal activities across multiple jurisdictions.
“Although Kosta has referred to these people as rats on multiple occasions, they continue to contribute to Nexo’s development, and above all, the profits he amasses.
“My ambition was to turn Nexo into a company that is a leader in its field. A company that will prove that Bulgarians also know how to create successful global companies, and not only come up with schemes for abuse, law violation and siphoning off funds. Yet, this is exactly what Kosta turned the company into.”
The SEC fining Nexo this week confirms these allegations in part. With a corresponding investigation by the Bulgarian authorities underway, this isn’t likely to be the last we’ll hear of Nexo’s malpractices.
The real face of Zeus Capital
The email’s third accusation refers to a triangle between the asset management firm and activist investor Zeus Capital, Nexo and the blockchain technology platform Chainlink.
It started when Nexo announced its partnership with Chainlink in July 2020. The partnership saw Chainlink integrate LINK, its propriety token, into the Nexo platform.
A short week later however, Zeus Capital produced and distributed a report about Chainlink, which above all the report identified as a Ponzi scheme; claims that have since been strongly debunked.
A corresponding email sent by Zeus Capital advised investors to exit their long positions in LINK. But here’s the twist.
Shulev alleges that it was Chainlink’s own partner, Nexo, that was behind Zeus Capital and its slanderous report; a killer coming from within.
“I wish to point out that the email address to which Zeus sent me their degrading analysis about Chainlink was…solely registered with Nexo,” his email states. “This goes to prove that Nexo sends these reports on behalf of Zeus Capital using its own client database.”
In addition to this revelation, he states that Nexo and Zeus Capital’s websites share identical typeform code. This comes as evidence that they share the same hand, however, once revealed by Twitter user @ChainLinkGod, the typeform code from Zeus Capital’s website quickly and mysteriously disappeared.
But why would Nexo have ambitions to act this way? If more investors adhered to Zeus Capital’s claim, it would create a short position on LINK from which Nexo allegedly sought to benefit.
Shulev identifies a conflict of interest between Nexo and its customers who have deposited LINK tokens for credit. Many “still believe tokens are not sold to Binance but are instead insured and in a safe place on BitGo,” Shulev claims.
“I will also not comment on the fact that Antoni proudly announced Nexo’s partnership with Chainlink, the hidden and main purpose of which is to attract additional resources to open short positions with LINK. This example is enough to provide evidence for conflicts of interest, market manipulation, misuse of personal data, and abuse of client assets.”
Biting the dust
It remains uncertain how many allegations made in Shulev’s three-year-old email are actually true. However, in retrospect, it does paint a fascinating picture of the crypto lender’s fall from grace.
In December, Nexo announced the phasing out of its US products and services, just in time for the SEC’s $45million fine. And now with the doors of its Bulgarian headquarters as shattered as its own reputation, it’s unclear, after such an astonishing leak from one of its co-founders, what the future might contain for crypto’s latest fallen angel.
Graduating from Aarhus University with a degree in communication and media studies, Kristina has been an avid writer and follower of the finacial news and cybercrymes space since 2011. A well-traveled journalist within the industry, Aubrey has written for many well-known outlets, and can often be found poring over white papers when she isn’t writing for Financial Magazine