With criminal charges brought against Bulgarian crypto platform Nexo, while everyone is waiting for the MiCA regulation, the country's latest developments will potentially have far-reaching implications worldwide, according to Mikov＆Attorneys Managing Partner Konstantin Mikov.
"One of the most notable topics in Bulgaria in the past few months has been related to criminal charges against major Bulgarian crypto exchange platform Nexo," Mikov begins. "This criminal case brought against the company might take years to be resolved and can potentially have a huge impact not only in Bulgaria but worldwide as well."
"Established by Bulgarian owners, Nexo has provided a platform for borrowing money where crypto is used as a security mechanism," Mikov explains. "The platform operated as a kind of bank, although not a traditional one – since the company does not hold any fiat money as deposits of the clients." He adds that "Nexo operates globally, with a large number of clients in Europe, Australia, as well as Canada. According to publicly available information, the cryptocurrency network operated from Bulgaria, Cyprus, and Serbia. Nexo operated the call centers from Serbia and used a technology structure from Bulgaria. One company, part of Nexo group, which created and administered the online platforms through which the allegedly fraudulent activity was carried out, was registered and based in Bulgaria. The money laundering base is alleged to have been in Cyprus."
Mikov says that, recently, "the Bulgarian prosecution’s office decided to raid local offices in Bulgaria and charged the company with alleged money laundering offenses, carrying out banking and financial activities without obtaining relevant licenses, as well as computer fraud and tax crimes.” According to him, “the precise alleged charges and the related information are not publicly available but are rather confidential. On the other hand, Nexo has decided to fight back, arguing that the raid was illegal and politically motivated. As stated by Antony Trenchev, co-founder of Nexo, the damage caused by the state is more than USD 1 billion and Nexo will sue Bulgaria for the proven damages."
Consequently, Mikov says that "the criminal case is related to one of the dominant crypto platforms in the world and, together with the recent FTX scandal, might have a significant impact on the crypto market. It is still early to speculate about the number of victims and losses." Still, he says, if successful, the case can showcase that scammers are not welcome in Bulgaria. "This entire area is slightly nebulous, beyond any kind of regulation," he explains. "There is no public regulator, which might lead to pyramid schemes and the need for consumer protection."
In light of that, Mikov says that the legal sector is now awaiting the EU regulation on Markets in Crypto-Assets. "Just as the normal financial market is regulated on the EU level, we anticipate a somewhat similar legal regime to be applied to the crypto market as well," he notes, adding that, subsequently, local jurisdictions would adopt laws so that the rules are harmonized. "At this moment, there is no such kind of protection, as the only authorities that can control the situation are criminal authorities. Without regulation, the state's prerogatives remain rather limited when addressing the situation," he concludes.