Alerts alerted staff to Nexo mishandling; Leaked email reveals

While the authorities raided the Bulgarian office of a crisis lender Nexoallegations in a leaked email three years ago provide insight into today’s downfall.

As Nexo faces scrutiny from every angle of the regulatory lens, did an email sent from one of its estranged co-founders back in 2020 attempt to sound the alarm?

Crypto lender Nexo becomes the latest industry player to fall into deep water amid an in-depth investigation by international regulators for alleged illegal activities.

Most recently have US Securities and Exchange Commission (SEC) fined Nexo a total of $45 million for failing to register the offering and sale of its Income Interest Product (EIP).

Back at the company’s home base in Bulgaria’s capital Sofia, the picture is just as bleak. On January 12, no less than 300 investigators, police and security officers searched 15 of the firm’s websites.

This was against the background of investigations into the creation of an organized crime group, tax offences, money laundering, banking without a license and computer fraud.

These are very serious allegations, and an email translation seen by Fintech Times may indicate that they can vote.

Shulev’s email

The child not embraced by the village will burn it down to feel the heat. And the heat now around Nexo may have first been ignited in an email sent from Nexo’s co-founder Georgy Shulev to the company’s management back in 2020.

Shulev’s email makes three main accusations, all of which are aimed at Nexo’s co-founder Cost Kantchevwith whom Shulev founded the company in August 2017. Adjacent co-founders, Anthony Trenchev and Kalin Methodiusare also partners in the company.

These allegations allege gross corporate governance, widespread illegal activity and the proliferation of schemes for abuse.

Locked out and out of pocket

The first accusation is that Kantchev has seized Shulev’s share of the company’s shares. Shulev explains that he agreed to split the shares with Kantchev equally at the company’s launch.

In addition, Nexo promised shares Cedissimo co-founder and CEO Sokol Yankov, as a legal entity. Trenchev, Metodiev, as well as some members of the company’s management, were also to receive these shares. Nevertheless, Shulev confirms that “these promises were never fulfilled” despite “several occasions” to raise the issue.

Shulev also refers to an email sent by Iankov to management on June 5, 2020. In this email, Iankov informs management that Kantchev had rigged the deal.

It is unclear whether Trenchev and Metodiev received their shares, although the email indicates clear concern.

“The company continues to operate with Kosta as the sole owner,” the email continues.

Prior to this, Shulev arranged a meeting with Kantchev on August 21, 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 original agreement, saying it suggested he should be on a yacht instead of in the office,” it said in Shulev’s email. “He indicated unequivocally that maintaining our equal parts is not an option for him.”

Shulev indicates that Kantchev avoided any further discussion regarding the distribution of the remaining shares, instead ending the meeting and leaving the very next day.

Two weeks later, Kantchev reportedly returned to the office “as if the conversation had never taken place.”

It is a week after Kantchev’s return, on September 13, that Shulev states that he lost access to the company completely. This included access to his emails, accounts and funds.

Shulev includes that after this he repeatedly tried to contact Kantchev, Trenchev and Metodiev about the matter, but to no avail.

He recognizes that Kantchev’s earlier plot to fire Metodiev in a similar manner has now become his reality.

“In this way,” Shulev continues, “Kosta took hold of my share, and to this day he refuses to discuss the topic of bringing it back to me or giving compensation. I guess to this day he is the only person who has shares in Nexo, a company that actually owns something.”

Illegal activity

The second allegation in Shulev’s email is even more alarming than the one about its internal power struggle.

Shulev claims that the firm conducts illegal activities on a daily basis, in Bulgaria and in a number of other jurisdictions. This suggests that Nexo is using its customers’ assets without their knowledge; as Shulev’s email lays out.

He suggests that Kantchev uses employees in operations for actions that are illegal. But no mention of these activities appears in previous regulatory investigations.

“Unfortunately, there are still a large number of highly intelligent people who are doing their best to constantly improve their skills at the company,” the email said. Shulev says employees unknowingly engage in daily illegal activities across multiple jurisdictions.

“Although Kosta has referred to these people as rats on several occasions, they continue to contribute to Nexo’s development and, above all, the profits he collects.

“My ambition was to make Nexo 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 just come up with schemes for abuse, violations of the law and siphoning of funds. Nevertheless, this is exactly what Kosta made the company for.”

The SEC fining Nexo this week partially confirms these claims. With a similar investigation by the Bulgarian authorities underway, this is likely not the last we will hear of Nexo’s mismanagement.

The real face of Zeus Capital

The email’s third accusation refers to a triangle between the asset management firm and the activist investor Zeus CapitalNexo and the blockchain technology platform Chain link.

It started when Nexo announced its partnership with Chainlink in July 2020. The partnership saw Chainlink integrate LINK, its proprietary token, into the Nexo platform.

However, a short week later, Zeus Capital produced and distributed a report on Chainlink, which above all identified the report as a Ponzi scheme; claims that have since been strongly debunked.

A similar email sent by Zeus Capital advised investors to exit their long positions in LINK. But here’s the twist.

Shulev claims that it was Chainlink’s own partner, Nexo, who was behind Zeus Capital and its slanderous report; a killer that comes from within.

“I would like to point out that the email address to which Zeus sent me his disparaging analysis about Chainlink was … exclusively registered with Nexo,” his email said. “This proves that Nexo is sending these reports on behalf of Zeus Capital using its own customer database.”

In addition to this disclosure, he states that Nexo and Zeus Capital’s websites share identical type code. This comes as evidence that they share the same hand, but once revealed by Twitter user @ChainLinkGod, the typeform code quickly and mysteriously disappeared from Zeus Capital’s website.

But why would Nexo have ambitions to act in this way? If more investors complied with Zeus Capital’s demands, it would create a short position on LINK that Nexo allegedly sought to take advantage of.

Shulev identifies a conflict of interest between Nexo and its customers who have deposited LINK tokens for credit. Many “still believe that tokens are not sold to Binance but is instead insured and in a safe place at BitGo“, claims Shulev.

“I will also not comment on the fact that Antoni proudly announced Nexo’s partnership with Chainlink, whose hidden and main purpose is to attract additional resources to open short positions with LINK. This example is enough to provide evidence of conflicts of interest, market manipulation, misuse of personal data and misuse of client funds.”

Bite the dust

It remains uncertain how many claims in Shulev’s three-year-old email are actually true. But in retrospect, it paints a fascinating picture of the crypto lender’s fall from grace.

In December, Nexo announced the phase-out of its US products and services, just in time for the SEC’s $45 million fine. And now with the doors of the Bulgarian headquarters as shattered as its own reputation, it is unclear, after such an astonishing leak from one of the co-founders, what the future may hold for crypto’s latest fallen angel.