Eight States File Lawsuit Against Crypto Lending Platform Nexo

New York State Attorney General Letitia James speaks at a press conference following the arrival of former US President Donald Trump’s Chief White House Strategist Steve Bannon in New York York, USA, September 8, 2022.

Caitlin Och | Reuters

Eight states announced on Monday that they are filing lawsuits against crypto lending platform Nexo Group in connection with its unregistered, interest-bearing cryptocurrency product.

Regulators in the states of California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont allege that Nexo offered its clients paid accounts without first registering them in as titles and without providing the required information. Without access to these financial statements, state regulators say investors could not make informed investment decisions.

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The filings also indicate that Nexo falsely told investors that it was a licensed and registered platform.

These interest-earning accounts, known as “Earn Interest Product”, allowed investors to deposit assets with Nexo in exchange for returns of up to 36% on their deposits.

Nexo’s terms and conditions stated that the company had the ability to deploy client assets in its “sole and absolute discretion”.

According to the order filed in Vermont, “Investors do not participate in the selection, monitoring or review of income-generating activities that Defendants use to earn that interest.”

The Vermont order says that as of July 31, 2022, more than 93,318 U.S. residents had invested more than $800 million in those accounts.

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

“Cryptocurrency platforms are not exceptional; they must register to operate like other investment platforms,” ​​said New York Attorney General Letitia James. “Nexo has violated the law and the trust of investors by falsely claiming that it is an authorized and registered platform. Nexo must end its illegal operations and take the necessary measures to protect its investors.”

In February, Nexo blocked US investors who had not yet opened a Nexo account from investing in the Earn Interest product or adding additional cryptocurrency to their accounts. State-filed orders further restrict Nexo from offering this product to residents until it meets necessary registration requirements.

In a statement, Nexo differentiated itself from other platforms that have experienced financial difficulties: “We have worked with US federal and state regulators and understand their urge, given the current market turbulence and bankruptcies of companies offering similar products, to fulfill their investor protection mandates by reviewing the past behavior of providers of interest bearing products… As the past few months have made clear, Nexo is a very different provider of interest bearing products, as in evidenced by the fact that it did not engage in unsecured loans, had no exposure to LUNA/UST, had to be bailed out, or had to resort to withdrawal restrictions.”

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