Nexo sued in eight US states

Trouble is brewing for crypto platform Nexo which is being sued by authorities in as many as eight US states.

Nexo indicted by eight US states

Crypto platform Nexo is reportedly being sued by eight US state securities regulators representing New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont, according to US government sources.

The accusation against the multiservice crypto platform Nexo, is that of selling unregistered securities, in accordance with what has now become a practice for crypto companies that often run into allegations of selling securities without authorization, as in the now-infamous case of the SEC’s lawsuit against Ripple, which has been going on for almost two years now.

In the specific case, the indictment brought by New York Attorney General Letitia James, reads verbatim: 

“Despite warnings from the Office of the Attorney General (OAG) to register as a securities and commodities broker or dealer, Nexo failed to register and misrepresented to investors that they are a licensed and registered platform. In New York, entities engaging in the offer, purchase, or sale of securities or commodities, including cryptocurrency platforms, must register with OAG if they are operating within the state or offering their products to New Yorkers. 

Through her lawsuit, Attorney General James seeks disgorgement of any revenues derived from Nexo’s unlawful conduct and restitution for investors.”

The lawsuit — filed in New York County State Supreme Court — bluntly alleges that Nexo promoted and sold:

“Securities in the form of an interest-bearing virtual currency account called the Earn Interest Product with promises of high returns for participating investors, while failing to register as a securities broker or dealer as required by state law.”

In addition, the lawsuit pursued also by seven other states, along with New York, alleges that Nexo engaged in the unregistered buying and selling of securities through its virtual currency trading platform called Nexo Exchange and misled investors by claiming to be in compliance with applicable laws and regulations, despite the fact that it did not have any type of license. According to the text of the complaint filed by the New York prosecutor, about 10,000 New Yorkers would have accounts with the company.

States involved in the indictment against Nexo

On Monday, the California Department of Financial Protection and Innovation also issued a cease and desist against cryptocurrency lender Nexo over its cryptocurrency interest-bearing accounts.

JUST IN: 🇺🇸 California issues cease and desist against #crypto lender Nexo over unqualified securities.

— Watcher.Guru (@WatcherGuru) September 26, 2022

The legal document affirms and reiterates the allegation made against the company by the New York State Attorney’s Office, namely that the company allegedly sold securities without authorization. “The securities were offered and sold without prior qualification, in violation of Section 25110 of the California Corporations Code,” states the filing filed by the California department, which continues in its lengthy examination stating:

“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.”

In an email, Nexo co-founder Antoni Trenchev said in reference to this set of allegations from the eight US states:

“We 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 also said that his company earlier this year decided to stop adding new US customers for its flagship product, cited in the very lawsuit in question, 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 crypto platform

When Nexo launched in 2018, it reportedly supported more than 50 cryptocurrencies, operating in about 200 jurisdictions. To date, it has more than 5 million users and has processed more than $80 billion, according to what its website states.

It has long been regarded as one of the leading financial institutions in the crypto sector. Its strategic partners include Circle, Ledger and Paxos. It has an insurance contract with London’s Lloyd to guarantee its users’ deposits, which undoubtedly ensures a fair degree of reliability. However, the failure of some competitors such as Celsius or Voyager Digital in recent months has certainly raised the bar for users and regulators in the industry.

The lawsuit filed by 8 states against the company is quite similar to the SEC’s lawsuit against Ripple and other crypto companies, which are allegedly accused of selling securities without having the authorization to do so. 

The SEC vs crypto companies on the same accusation

Ripple was dragged to court by the SEC in December 2020 and the case is still pending, despite the fact that the cryptocurrency company has already scored several points in its favor. The New York Stock Exchange’s regulator, led by Gary Gensler, has been engaging in obstructive behavior for some time now, seeking by all means to lengthen the trial time. 

According to some, this behavior is being adopted in anticipation of finally having a new precise and detailed regulation of the industry, as has long been demanded by the industry players themselves.

In April, US President Joe Biden issued an executive order aimed at giving precise regulation to an industry like crypto, which still suffers from a kind of regulatory Wild West that lends itself to fraudulent and unclear uses of digital assets.

Many states including the United Arab Emirates, Japan and South Korea have already adopted industry regulations to facilitate digital currency transactions and payments, while others such as the European Union have recently passed a regulatory law, known as MiCA, which is expected to come into effect in early 2023.