The Department of Financial Protection and Innovation in California issued a cease and desist order Monday against Nexo, a crypto lender. It was concerned about its crypto interest-bearing account.
These accounts are considered securities by the Department of Financial Protection and Innovation. New York’s Attorney General filed a lawsuit against Nexo accusing it selling unregistered securities.
Other U.S state securities regulators, such as Vermont, are also pursuing legal action against Nexo.
On Monday, a group of U.S. regulators announced a series of legal actions against the crypto lender Nexo.
California’s Department of Financial Protection and Innovation issued cease and desist orders against crypto lender Nexo for its crypto interest-bearing account on Monday.
The cease and desist document claims that Nexo’s Earned Income Product accounts are securities. It also alleges that they were offered and sold “without prior qualification, in contravention of California Corporations Code section 251110.”
According to the filing, “As of July 31, 2022 over 18,000 California residents had active Earn Interest Products flex- and fixed-term accounts; these accounts collectively hold investments at least $174 800,000.000.”
Separately, Letitia James , New York Attorney General, announced that she would be filing a lawsuit against Nexo.
Nexo falsely claimed that it was a registered and licensed platform, which violated both the law and investors’ faith. James stated in a statement that Nexo must cease its illegal operations and take the necessary steps to protect its investors. According to the complaint, New York seeks to ban Nexo permanently from selling securities in the State.
Vermont published cease-and–desist orders and Washington issued a statement of charges in advance of its cease-and–desist orders. Maryland and Oklahoma as well as South Carolina released their enforcement action documents following the publication of this report.
Antoni Trenchev, co-founder of Nexo, told The Block via email that he had been working with US regulators. He said that they understand the need to protect investors by looking at past behavior of earn interest product providers, in light of current market turmoil and bankruptcies.
Trenchev mentioned a move earlier in this year to cease adding new US customers to its interest product. He said Nexo is committed to finding a clear pathway forward for the regulation of products and services in the US.
These announcements are noteworthy because other crypto lenders like Celsius and BlockFi have previously been subject to more severe scrutiny by American securities regulators. Nexo appears to be in the regulatory crosshairs after the short disclosure of identifying data by New York’s Office of the attorney General.
After a series of investigations, BlockFi eventually paid a $100million fine. This was split between the U.S Securities and Exchange Commission and state regulators. In July, Celsius was also the subject of investigations by the state and declared bankruptcy due to severe financial difficulties.