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

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

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Key Takeaways

  • Eight US state regulators have issued cease and desist orders or similar charges against cryptolender Nexo.
  • Nexo’s high-yield Earn Interest product is considered an unregistered security by these regulators.
  • Nexo has recognized the need to regulate crypto lenders and differentiate itself from its competitors.

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Several US state regulators have issued cease and desist orders against crypto-lending platform Nexo.

C&D issued against Nexo

Eight US states are taking legal action against Nexo for allegedly offering unregistered securities to clients.

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

The allegations concern the Nexon Earn Interest Product, an interest-bearing account that promises returns of up to 36%. Regulators allege that its Earning Interest product was unregistered securities and that the company did not provide enough information to customers.

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

New York Attorney General Letitia James alleged that Nexo was selling unregistered securities and commodities, adding that it “violated the law and investor confidence by falsely claiming to be a licensed and registered platform.”

Vermont’s filing showed that more than 93,000 US 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, respectively, based on those states’ respective filings.

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

The company called itself “a very different supplier of fixed income products”. It emphasized that it does not work with unsecured loans, it has not been exposed to the collapsed TerraUSD and LUNA tokens, it has not frozen user withdrawals and it has not demanded a bailout.

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

Today’s action against Nexo is similar to the case against BlockFi, which settled for $100 million with the US 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.

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