California New York US state action against cryptocurrency lender Nexo

• Cryptocurrency lender Nexo faces legal action from a number of US state regulators.
• California’s Department of Financial Protection and Innovation told Nexo to stop offering accounts that earn interest in crypto.
•  New York Attorney General Letitia James said that Nexo would be sued.
• Nexo co-founder Antoni Trenchev says he understands regulators need to protect investors.

Monday, a group of US state regulators said they would take a number of legal actions against the cryptocurrency lender Nexo.

Monday, California’s Department of Financial Protection and Innovation told crypto lender Nexo to stop offering accounts that earn interest in crypto.

The cease-and-desist letter says that Nexo’s Earned Interest Product accounts are securities that “have been offered and sold without prior qualification, in violation of California Corporations Code section 25110.”

“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,” the filing said.

In a different statement, New York Attorney General Letitia James said that Nexo would be sued.

“Nexo violated the law and investors’ trust by falsely claiming that it is a licenced and registered platform. James said in a statement that Nexo must stop doing things that are against the law and take the steps needed to protect its investors. The complaint says that New York wants to make it so that Nexo can never sell securities in the state again.

Vermont put out a “cease and desist” order, and Washington put out a list of charges before putting out its own “cease and desist” order. After this report came out, enforcement action documents were released by Maryland, Oklahoma, South Carolina, and Kentucky.

In an email to The Block, Nexo co-founder Antoni Trenchev said, “We have been working with US federal and state regulators, and we understand their need to protect investors by looking at the past behaviour of companies that offer earn interest products, given the current market turmoil and the bankruptcies of companies that offer similar products.”

Trenchev said that earlier this year, Nexo decided to stop adding new US customers to its interest product and that the company is “committed to finding a clear path forward for the regulated provision of products and services in the US, ideally on a federal level.”

Other crypto lenders, like Celsius and BlockFi, had been criticised more directly by American securities regulators before the announcements. Nexo seemed to be in the regulatory crosshairs after New York’s Office of the Attorney General briefly shared identifying information.

After a number of investigations, BlockFi had to pay a fine of $100 million, which was split between the U.S. Securities and Exchange Commission and state regulators. Celsius was also looked into by the state, and in July, the company filed for bankruptcy because of its bad financial situation.