Eight states file action against Nexo crypto lending platform

New York State Attorney General Letitia James speaks at a news conference after US President Donald Trump’s former chief strategist Steve Bannon arrived to surrender, in New York, U.S., September 8, 2022 .

Caitlin Ochs | Reuters

Eight states announced on Monday that they are taking action against crypto lending platform Nexo Group in relation to its unregistered interest-bearing crypto product.

Government agencies in California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont alleging Nexo provided customers with profitable accounts without pre-registering as securities and providing the necessary disclosures. Without access to these financial reports, state regulators say investors cannot make informed investment decisions.

The filing also says that Nexo misrepresented the accounts and suggested to investors that it was a licensed and registered platform. These interest-earning accounts, known as “Earning Products,” allow investors to deposit assets into Nexo in exchange for a return as high as 36% on their deposits.

The crackdown comes as several recent crypto bankruptcies this year have left investors without access to their funds. Celsius, which offers accounts with similar interest rates, filed for bankruptcy this summer after freezing customer funds in June. Voyager filed for Chapter 11 bankruptcy in July. The industry saw billions of dollars wiped out in the weeks surrounding the Terra USD crypto crash and the failure of the crypto hedge fund Three Arrows Capital.

Nexo’s terms and conditions state that the company has the ability to deploy customer assets at “its sole and absolute discretion.”

According to the order filed in Vermont, “investors are not engaged in the selection, oversight, or review of the revenue-generating activities that Respondents use to earn these returns.”

The Vermont Order provides that as of July 31, 2022, more than 93,318 US residents have invested more than $800 million in these accounts.

With more than 10,000 of its residents affected, the Attorney General of New York filed a lawsuit against the cryptocurrency platform.

“Cryptocurrency platforms are no exception; they must be registered to function like other investment platforms,” said New York Attorney General Letitia James. “Nexo violated the law and investors’ trust by falsely claiming that it was a licensed and registered platform. Nexo must stop its illegal activities and take actions necessary to protect its investors.”

In February, Nexo prevented US investors who had not opened a Nexo account from investing in Interest Earning Products or adding additional crypto to their accounts. Orders filed by additional states prevent Nexo from making this product available to residents until it meets the necessary registration requirements.

In a statement, Nexo sought to set itself apart from other platforms that have had financial problems this year.

“We have worked with U.S. federal and state regulators and understand their urges, amid current market turmoil and the bankruptcy of companies that supply these products. similarly, to fulfill its duty to protect investors by examining the past behavior of suppliers of profitable products,” the company said in a statement. “As recent months have clearly highlighted, Nexo is a very differentiated provider of interest-earning products, as demonstrated by the fact that it does not engage in decentralized, contactless lending. LUNA/UST, no guarantee, or necessary to use any withdrawal restrictions.”

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