Nexo Hit With Cease and Desist Orders From Eight U.S. States

Multiple U.S. state regulators have issued cease and desist orders against the crypto lending platform Nexo.

C&D Issued Against Nexo

Eight U.S. states are taking legal action against Nexo for allegedly offering unregistered securities to customers.

On Monday, September 26, state regulators in California, Oklahoma, Kentucky, and Vermont announced cease and desist orders against Nexo. New York, South Carolina, and Maryland did not use the terms “cease and desist,” but issued orders to the same effect.

The allegations concern Nexo’s Earn Interest Product, an interest-bearing account that promises up to 36% returns. The regulators are arguing that its Earn Interest Product constituted unregistered securities and that the company failed to provide adequate disclosures to customers.

California Department of Financial Protection and Innovation Commissioner Clothilde Hewlett said that her department has taken “undertaken aggressive enforcement efforts” against unregistered interest-bearing crypto accounts. Such accounts are considered securities and are subject to investor protection and risk disclosure laws, Hewlett says.

New York Attorney General Letitia James asserted that Nexo sold unregistered securities and commodities, adding that it “violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform.”

Vermont’s filing indicated that over 93,000 U.S. residents had invested more than $800 million in Nexo accounts. About 10,000 and 18,000 of those residents are in New York and California, based on those states’ respective filings.

Nexo has not published a public response to the news. However, in a statement quoted by CNBC, Nexo said that it has been “working with U.S. federal and state regulators.” The firm also said that it recognizes the need to regulate the crypto lending industry due to the ongoing market crisis and bankruptcies among its competitors.

The company called itself a “very different provider of earn interest products.” It emphasized that it does not work with uncollateralized loans, had no exposure to the collapsed TerraUSD and LUNA tokens, has not frozen user withdrawals, and has not required a bailout.

Nexo was one company that survived this summer’s market crash, while competitors such as Celsius and Voyager Digital suspended withdrawals and declared bankruptcy.

Today’s action against Nexo is similar to a case against BlockFi, which settled for $100 million with the U.S. SEC and state regulators over its unregistered status in February.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.