Nexo Receives Cease and Desist Order From California Regulators
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Several California securities regulators have ordered crypto-lending platform Nexon to halt its crypto-lending products.
The state argues that the company’s interest-bearing accounts are unregistered securities that require proper disclosure and legal protection.
- The enforcement action was announced The California Department of Financial Protection and Innovation (DFPI) announced Monday. The department said its action was part of a larger investigation into companies offering crypto-interest accounts.
“DFPI has taken aggressive enforcement action against unregistered interest-bearing cryptocurrency accounts,” said DFPI Commissioner Clothilde Hewlett. “These crypto interest accounts are securities and are subject to investor protections under the law, including appropriate risk disclosure.”
- As the department notes, the order follows similar DFPI actions against BlockFi, Voyager and Celsius. BlockFi admitted A $250 million credit facility from FTX during the June market turmoil when Celsius and Voyager filed for bankruptcy.
- DFPI decided that the Nexo Earn Interest accounts were not properly classified as securities. Such accounts allow depositors to earn a fixed return in crypto, sometimes up to 36% APY.
- The return is typically generated from trading the volatility of the crypto market with depositors’ money. However, poorly timed trades and market declines can lead to rapid insolvency of institutions.
- The department said such rates “are significantly higher than those charged on short-term, investment-grade, fixed-income securities or bank savings accounts.”
- Securities and Exchange Commission (SEC) Chairman Gary Gensler has stated the same, warns investors from crypto accounts offering returns of over 4.5%.
- Last September, the SEC forced Coinbase to suspend its loan product offering to investors a day before its launch. CEO Brian Armstrong strongly different opinion The SEC judged the product to contain securities, but agreed to the Commission’s demands.