A family of fintech entrepreneurs are suing a leading crypto exchange over claims it blocked them from withdrawing funds and then intimidated them into selling them back to the company at a discount.
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.
Nexo, which claims all assets held on its platforms are more than “fully-backed”, has previously put itself forwards as a leader in terms of transparency.
The exchange claims it has five million users and says it has processed more than $130bn worth of transactions over the past five years.
The Mortons first began withdrawing their combined $126m cryptocurrency holdings from Nexo in March 2021, over concerns about transparency and the exchange’s compliance with regulators.
Specifically, the Mortons had concerns over Nexo’s structure, its regulatory status with the UK’s Financial Conduct Authority (FCA), and the extent to which the sum of all Nexo Tokens were owned by Nexo employees.
After flagging their concerns to Nexo in December 2020 and failing to receive a satisfactory response, the Morton’s began selling their Nexo Tokens in tranches, with a view to withdrawing their entire $126m cryptocurrency holdings from the exchange.
The investors had sought to sell their Nexo Tokens in small portions so as to prevent their sell-off from impacting the price of the cryptocurrency, which claims to be the first coin to pay a dividend.
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.
After being frozen out of their accounts, the businessmen called the Nexo employee who had managed the coin exchange’s relationship with the three investors, demanding an explanation for the cryptocurrency exchange’s actions.
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.
Nexo have been approached by City A.M. for comment.