On October 18, the New York Attorney General Letitia James announced cease and desist letters to two cryptocurrency lending firms. Another three firms received requests for information on corporate ownership and handling of user deposits.
The Office of the Attorney General (OAG) redacted the names of the firms under scrutiny. However, the cease-and-desist retained the names "Nexo Letter," while the request for information was labeled "Celsius Letter" upon initial publication, though the OAG subsequently corrected its files. The names implicate two of the largest lending platforms.
The Nexo cease-and-desist letter says that the OAG considered the firm's failure to register as a broker-dealer a violation of the Martin Act. BlockFi, a leading competitor, has been unavailable in New York since 2020.
The cease-and desist-letters give the two firms 10 days to "cease any and all such activity and confirm to the OAG the activity has ceased, or explain why the OAG should not take further action, including seeking all relief permitted by law."
The Celsius letter was slightly more restrained, giving the firm until November 1 to provide information as to its ownership structure, its investment strategy and its means of custody for crypto deposits.
As to the other three firms that received NYAG letters, they remain unidentified. A representative for Celsius did not immediately respond to requests for comment.
In an email to The Block, Nexo CEO Antoni Trenchev wrote: "Nexo is not offering its Earn Product and Exchange in New York, so it makes little sense to be receiving a C&D for something we are not offering in NY anyway. But we will engage with the NY AG as to is this is a clear case of mixing up the recipients of the letter. We use IP-based geoblocking."
There has been a wave of state regulators clamping down on crypto lending platforms. This summer, New Jersey-based BlockFi was the first to receive a round of cease-and-desist from state securities regulators, followed by Celsius.
Nationally, the Securities and Exchange Commission has not overtly stepped in on existing platforms, but Chairman Gary Gensler has indicated that they are on the commission's radar. The SEC also apparently quashed a new lending offering from Coinbase, which has rankled the firm enough to cause it to promote the creation of a whole new regulator for crypto.
10/18/21 11:50 EDT: This article has been updated to include comment received from Nexo after initial publication.