Crypto Lender NEXO Faces Cease-and-Desist Order From California

All-in-one cryptocurrency platform Nexo has received a cease-and-desist order in the U.S. state of California. 

The desist-and-refrain order which was filed by California’s Department of Financial Protection and Innovation (DFPI) alleges that Nexo has offered and sold “unqualified securities” through the program in violation of California’s Çooperation Code. 

The DFPI estimated in the document that as of July 2022, over 18,000 California residents have accounts in the program and hold investments of at least $174.8 million. However, Nexo has not registered with the state regulator to offer these investment services to Californians. 

“The Commissioner has issued no permit or other form of qualification authorizing Nexo, Nexo Inc., or Nexo Capital Inc. to offer or sell securities, including Earn Interest Product accounts, in California. Nor are the offers and sales of these securities excepted, exempt, or otherwise not subject to qualification,” the document said. 

Securities regulators in seven other states including New York, Kentucky, Maryland, Oklahoma, South Carolina, Washington, and Vermont all simultaneously filed their own administrative actions against Nexo. 

In a statement, the Attorney General of New York, Letita James said that her office was suing the lender for failing to register as a securities and commodities broker despite warnings and also misrepresenting to investors that they are a licensed and registered platform. James intends to compel Nexo to also forfeit all revenue it earned from operating in the state.  

“Instead of misleading New Yorkers about its compliance with the law, crypto platforms must register to operate just like other investment platforms,” she added in a tweet. 

I'm suing crypto platform @Nexo for illegally failing to register with my office and lying about it to investors.

Instead of misleading New Yorkers about its compliance with the law, crypto platforms must register to operate just like other investment platforms.

— NY AG James (@NewYorkStateAG) September 26, 2022

Nexo says it has consistently tried to comply with regulations 

According to a CNBC report, Nexo has said in a statement in response to the allegations that it has been working with U.S. federal and state regulators and understands their concern, especially in the face of multiple bankruptcies in the crypto market.

However, Nexo is very different from other earn interest product providers as its performance in recent months has shown it reassured. 

“As the recent months have clearly underlined, Nexo is a very different provider of earn interest products, as showcased by the fact that it did not engage in uncollateralized loans, had no exposure to LUNA/UST, did not have to be bailed out, or needed to resort to any withdrawal restrictions,” the statement read. 

Back in February, Nexo restricted new U.S. customers from signing up for its interest-bearing products. Meanwhile, in similar regulatory actions, crypto lending platform BlockFi was ordered to pay a $100 million settlement to the SEC and 32 state regulators.