California, New York Join Several States Ordering Crypto Lender Nexo to Halt Yield Product

California, New York and six other states are suing cryptocurrency lending platform Nexo for offering unregistered securities in the form of accounts that pay interest for cryptocurrency deposits, the states said in statements on Monday.

New York's action specifically accused Nexo of misrepresenting its registration status.

“Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform," said New York Attorney General Letitia James, who is demanding the company give up the revenue from its "Earn Interest Product" accounts and provide restitution to customers. "Nexo must stop its unlawful operations and take necessary action to protect its investors.”

After the Securities and Exchange Commission made its view clear on interest-bearing accounts early this year, Switzerland-based Nexo said it had "voluntarily ceased the onboarding of new US clients for our Earn Interest Product as well as stopped the product for new balances for existing clients," according to a statement sent to CoinDesk on Monday. "Nexo is committed to finding a clear path forward for the regulated provision of products and services in the US, ideally on a federal level."

The states – also including Washington, Maryland, Kentucky, Oklahoma, South Carolina and Vermont – filed individual actions targeting certain yield-producing accounts at Nexo. The lender advertises the accounts as "high-yield," and California noted the company offered annual interest rates as high as 36%.

“These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved,” said Clothilde Hewlett, commissioner of California’s Department of Financial Protection and Innovation. California claimed that as of July 31, more than 18,000 of its residents had $175 million in such accounts.

Crypto firms BlockFi, Voyager Digital and Celsius Network Inc. have been subjected to similar regulatory actions. While BlockFi resolved state and federal actions with a $100 million settlement, lenders Voyager and Celsius have been immersed in bankruptcy, with Celsius shareholders filing last week to secure a share of the firm’s remaining assets.

UPDATE (Sept. 26, 2022, 19:09 UTC): Adds further comments from states.

UPDATE (Sept. 26, 2022, 20:01 UTC): Adds comment from Nexo.