Open Letter on the Vauld Acquisition

Dear All,

For over six months now Nexo has invested considerable resources and efforts in good faith to provide Vauld’s creditors with the best possible proposal and a path forward amidst the disastrous legacy that Vauld’s previous management and former CEO, Darshan Bathija, have left behind and which has resulted in the company’s bankruptcy.

After their spectacular failure, one would have assumed that the previous members of the senior management would have been humbled by the pain they inflicted upon hundreds of thousands of innocent people who entrusted them with their lent assets, alas we are seeing the exact opposite. A never-ending attempt to steer the victims toward a new scheme with promised overambitious fund management returns, a wild speculation, for which the creditors have never subscribed in the first place. Apparently, neither Vauld’s managers, nor their adviser, have heard of a customer risk preference assessment, an institutional approach to asset allocation, in which creditors with low risk tolerance and fixed-income preferences are never arm-wrestled into speculative fund management. It is not only immoral, but illegal in many geographies of the financial services world.

It is therefore now unfortunately abundantly clear that Darshan Bathija and his clique do not have their creditors’ best interest in mind; on the contrary, they are now not even trying to hide the fact that they are doing everything they can to push aggressively for a questionable deal with an affiliated obscure fund manager that – given how they operated the company so far – will most certainly result in the total loss of whatever little assets are still left on Vauld’s balance sheet through speculation and hefty management fees. We would advise all creditors to continue asking the question how much of their little assets left will continue to be spent month after month on expenses for Darshan Bathija and his clique, including but not limited to adviser fees, fund management fees, lawyer fees, etc. The expectations forced upon Nexo throughout the process have been for a 24-month recovery to 100% of the assets. Have the creditors asked implied net rate of return would be necessary for the fund during the same period to achieve the same?

A brief history of Darshan Bathija’s and his clique’s accomplishments:

• Vauld’s clients' assets are held not in the company’s name but in the former CEO’s personal crypto accounts
• Management lost $70M because of “accounting entries” and investments in the collapsed TerraUSD
• India seizes $46M from Vauld in a money-laundering probe
• Despite the rumors of FTX insolvency, Vauld continued to hold at least $10M in FTX
• $130M of the remaining assets are funds that Vauld’s previous CEO Darshan Bathija had lent to Amber Group, another struggling crypto firm

For those not following this on a daily basis, Vauld’s previous management – in cahoots with several credit committee members and their advisers – are using their position to try to push Nexo out of the deal in favor of a competitive bid by their affiliated fund manager. The contender is an unknown fund manager with no track record, no past performance to point to but grandiose unattested promises of exorbitant annual returns, regardless of market conditions. Since the proposal makes little sense, a number of people have argued that those voting for this bid must be part of this secret deal favoring the previous management along with a selected few whale customers.

The clique in question is attacking Nexo in the media in an attempt to break Nexo’s exclusivity in the M&A process while also shifting the focus of the absurdity of their proposal by questioning Nexo’s financial health and our ability to cater to US clients, all the while not answering the questions of how they intend to offer fund management services to the US retail market amidst the regulatory clampdown on crypto earn interest products in the US, nor shedding any light on their own track record, risk disclosures, proposed trading strategies, and regulatory and licensing infrastructure. This is in stark contrast to Nexo's impeccable track record of success since 2018, transparency, and proof of financial well-being via our real-time attestation which is publicly available since mid-2021 and shows that Nexo’s assets exceed liabilities at all times.

Being in dialogue with US federal and state regulators, few companies besides Nexo have a better understanding of the dynamics around regulation there – we can unequivocally confirm that their fund manager’s plans to onboard and provide US clients with asset management services for their digital asset are delusional, will not happen, and the very notion that they will be able to do it points at total incompetence and shows a readiness to say whatever to close their deal and potentially abscond with the remaining funds.

The best US clients can hope for is what Nexo is offering – to receive their proportionate amount of assets that are currently available on Vauld’s balance sheet. This means taking a haircut that amounts to the losses described above, and we have been called ‘cold’ for pointing this out, but the truth has no temperature.

While of course, Vauld’s credit committee is at liberty to determine its path forward, a few items are of importance:

• Fool me once, shame on you, fool me twice shame on me – when a promise is too good to be true, it usually is. Fancy promises about unsustainable returns by the previous management got Vauld’s creditors into the current situation and predicament. Those responsible should be getting class action lawsuits for the losses, not more funds to manage.
• Nexo’s Final Proposal is the best possible path forward and is the only path forward – we are not sugar-coating the situation, Darshan Bathija's management of Vauld has been devastating. Nexo’s team has devised a plan that will create the maximum value possible for creditors, and it is a plan that we know and have proven that we can execute.
• Nexo has an exclusivity period for its acquisition of Vauld – having had to hire different advisors and invest significant time, money, and efforts for the successful completion of the Vauld acquisition, Nexo has accumulated material costs. While we take no pleasure in enforcing the breakup clause that grants Nexo $20 million, as it would shrink even further the assets available to creditors, Nexo has to recoup the losses it has suffered through the sabotage of Darshan Bathija and his clique.

We hope that this additional color around Nexo’s proposal and internal dynamics will put everything in the right perspective so as for the creditors to be in a position to assess the situation correctly, ahead of the voting on the respective propositions. Since we have seen a plethora of bad-faith actions, we recommend that the creditors demand an independent third-party administrator to ensure the fairness of the voting process and results, as well as to keep track of the minutes of all credit committee meetings.

At Nexo, we nevertheless remain committed to seeing this deal go through as we believe that our unrivalled expertise in the crypto lending space is what will generate the maximum value for Vauld creditors. Of course, any Vauld customer who has any doubts about Nexo and our ability to deliver exactly what we are promising, will be free to immediately withdraw their available account asset balances as they currently stand pro-rata, alongside US customers, and without any holdup periods, as per the terms of our proposal.

Sincerely,
The Nexo Management