Nexo Disabling Withdrawals Forcing Token Sale

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Nexo Logo/Website

Nexo, a London-based crypto exchange, is alleging to have prevented three tech entrepreneurs—brothers Jason and Owen Morton and their cousin Shane Morton from withdrawing over $126 million worth of cryptocurrencies and coerced them into selling their assets at a 60% discount. The investors claim that Nexo froze their accounts after expressing concerns about the exchange's transparency and then pressured them into selling Nexo Tokens back to the company. The lawsuit alleges breach of contract, claiming that Nexo imposed "bespoke" withdrawal limits and intimidated the investors into selling tokens below market value. A High Court lawsuit against Nexo was filed. Nexo responded, stating that all transactions were completed in good faith and considered the claim opportunistic as the events occurred in March 2021.

This is a global/international case not involving a specific country.

About Nexo

"Buy & Earn Interest on BTC, USDT and Other Digital Assets Grow your crypto wealth and keep it secure with Nexo."

"The Mortons claimed they initially informed Nexo about their concerns in December 2020 but received an unsatisfactory response.

Subsequently, they decided to withdraw their combined crypto assets worth $126 million from the exchange. In March 2021, they started liquidating their NEXO tokens in small portions to avoid a heavy impact on the market. They also had other crypto assets, including Bitcoin (BTC), Pax Gold (PAXG), and Stellar (XLM)."

"This news article covers info that happened in 2021 and has been fully public for several months. Nexo commented on it many months ago."

"The three crypto investors have filed a High Court lawsuit against London headquartered Nexo over claims it stopped them from withdrawing more than $126m (£107m) worth of cryptocurrencies and then intimidated them into selling their assets at a 60 per cent discount.

The tech entrepreneurs – brothers Jason and Owen Morton and their cousin Shane Morton – claim Nexo froze their accounts after they sought to pull their assets off the Cayman Islands incorporated exchange, due to becoming concerned about its lack of transparency.

The investors claim they were then intimidated into selling millions worth of Nexo Tokens back to the company at a discount price, on the threat they would be blocked from withdrawing their crypto from Nexo’s exchange, according to High Court documents seen by City A.M.

Together, the three men had millions of Nexo’s own cryptocurrency, Nexo Tokens, stored the exchange alongside tens of millions of dollars’ worth of other cryptocurrencies, including Bitcoin, Pax Gold, and Stellar."

"However, on 22 March 2021, Nexo – without notice or explanation – imposed bespoke daily withdrawal limits on the entrepreneurs’ accounts, which blocked them from pulling more than $150,000 a day off the platform, the High Court claim says.

The following day, on 23 March 2021, Nexo then entirely blocked the entrepreneurs from withdrawing their assets, by greying out their withdraw buttons, therefore disabling them from pulling any cryptocurrencies from the platform.

That same day, Nexo also blocked two of the businessmen from converting their Nexo tokens into other cryptocurrencies, by greying out the convert buttons that had previously been available to both Shane and Owen Morton."

"During their conversation, the account manager explained Nexo had frozen their accounts to “support the price of Nexo Tokens,” the High Court filings show.

He in turn offered the investors a deal, through which they could either sell their Nexo Tokens at a 60 per cent discount on their market price in return for a complete removal of any subsequent withdrawal limits.

The Mortons subsequently accepted Nexo’s offer through which they agreed to sell their Nexo Tokens at a 60 per cent discount on their market price, in return for the removal of withdrawal limits. The deal saw Nexo pay the investors $38,948,743 worth of the dollar-pegged stablecoin Tether.

Altogether, the Mortons held 38,793,323.7 Nexo Tokens when they sought to withdraw their assets. In March, those assets would have been worth around $85.4m, according to data from CoinMarketCap.

The Mortons also held 281.05 Bitcoin, worth around $12.5m, on Nexo’s platform.

The High Court lawsuit claims Nexo breached its contract with the crypto investors by imposing “bespoke” withdrawal limits on their accounts. The lawsuit also claims the investors were intimidated into selling their Nexo Tokens at a below market price."

"In a response to the lawsuit posted on its website, Nexo said the claimants’ transactions included fixed-term arrangements and the subsequent sale of their Nexo tokens, and that spot trades of large blocks of crypto assets can involve higher spreads.

“However, all transactions, including the sale of their Nexo tokens, were completed in good faith, were documented and were accepted as final by the claimants at execution,” Nexo said in the statement.

The crypto lender added in the statement that it considers that the claim has been brought “opportunistically” because the events outlined in the lawsuit were completed in March 2021 and Nexo considered the matter closed."

"Inevitably, spot trades of large blocks of crypto-assets can involve higher spreads. However, all transactions, including the sale of their Nexo tokens, were completed in good faith, were documented and were accepted as final by the claimants at execution. Having made substantial profits from trading their Nexo tokens, the claimants withdrew all their assets from the Nexo platform and they are not disputing this fact."

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Nexo Disabling Withdrawals Forcing Token Sale

Date	Event	Description
December, 2020	Concerns Not Addresses	The Mortons claimed they initially informed Nexo about their concerns in December 2020 but received an unsatisfactory response.
March 22nd, 2021	Withdrawal Limit	A withdrawal limit of $150,000 is imposed without warning.
March 23rd, 2021	Withdrawals Blocked	Withdrawals of the Nexo token are blocked entirely.
September 29th, 2022	Case Filing	A case is filed against Nexo in the matter.
November 11th, 2022	Nexo Issues Response	Nexo issues a response on their blog. "Inevitably, spot trades of large blocks of crypto-assets can involve higher spreads. However, all transactions, including the sale of their Nexo tokens, were completed in good faith, were documented and were accepted as final by the claimants at execution. Having made substantial profits from trading their Nexo tokens, the claimants withdrew all their assets from the Nexo platform and they are not disputing this fact."
November 21st, 2022 3:26:12 AM MST	CityAM Article	CityAM publishes an article on the matter.
December 12th, 2022	Nexo Files Defense	Nexo files a defense in the lawsuit.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $58,350,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

The total amount recovered is unknown.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.