California, New York and other U.S. states take action against crypto lender Nexo

Quick Take

  • California’s Department of Financial Protection and Innovation issued a cease and desist against crypto lender Nexo Monday over its crypto interest-bearing accounts. The Department of Financial Protection and Innovation considers these accounts securities.
  • New York’s Attorney General announced a lawsuit against Nexo, accusing it of selling unregistered securities in the state.
  • Other U.S. state securities regulators, including Vermont, are pursuing actions against Nexo.

A group of U.S. state regulators announced an array of legal actions against crypto lender Nexo on Monday.

California's Department of Financial Protection and Innovation issued a cease and desist against crypto lender Nexo Monday over its crypto interest-bearing accounts.

The cease-and-desist document alleges that Nexo's Earned Interest Product accounts are securities and "have been offered and sold without prior qualification, in violation of California Corporations Code section 25110."

"As of July 31, 2022, over 18,000 California residents have active Earn Interest Product flex- or fixed-term accounts; these accounts collectively hold investments totaling at least $174,800,000," the filing said.

In a separate announcement, New York Attorney General Letitia James announced a lawsuit against Nexo. 

“Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors," James said in a statement. New York is seeking to permanently bar Nexo from selling securities in the state, per the complaint.

Vermont published a cease-and-desist order and Washington released a statement of charges ahead of a cease-and-desist order of its own. Following the publication of this report, Maryland, Oklahoma, South Carolina and Kentucky published their enforcement action documents. 

In an email, Nexo co-founder Antoni Trenchev told The Block that "[w]e have been working with US federal and state regulators and understand their urge, given the current market turmoil and bankruptcies of companies offering similar products, to fulfill their mandates of investor protection by examining past behavior of providers of earn interest products."

Trenchev cited a move earlier this year to stop adding new US customers for its interest product and said 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 announcements are notable given that other crypto lenders, such as Celsius and BlockFi, had previously drawn more direct ire from American securities regulators. Nexo appeared to be in the regulatory crosshairs following the brief disclosure of identifying information by New York's Office of the Attorney General. 

BlockFi ultimately paid a $100 million fine, split between the U.S. Securities and Exchange Commission and state regulators, following a spate of investigations. Celsius, too, was the subject of state investigations and in July declared bankruptcy amid severe financial problems. 

This story is developing. Headline and body to be updated as new information develops.

Editor's Note: Updated with comment from Nexo.

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