Crypto platform Nexo is being sued by eight U.S. state securities regulators representing New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont.
According to a press release from New York Attorney General Letitia James, Nexo and Nexo Capital failed to register with the state’s securities and commodities brokers or dealers and lied to investors about their registration status.
James seeks to compel Nexo to forgo the revenue from its “Earn Interest Product” crypto deposit accounts and provide financial restitution to customers who used it, according to the complaint. Nexo advertised that the product could provide users with yields of up to 36%, CNBC reported Monday.
Since Nexo launched in 2018, it has supported over 50 cryptocurrencies, operated across about 200 jurisdictions, garnered over 5 million users and processed over $80 billion, according to its website.
The New York Office of the Attorney General said it warned Nexo to register as a securities and commodities broker or dealer, but it failed to do so. The office did not disclose when it provided those warnings.
“Cryptocurrency platforms are not exceptional; they must register to operate just like other investment platforms,” James said in a statement. “Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors.”
Separately, California’s Department of Financial Protection and Innovation issued a cease-and-desist order against Nexo’s crypto-interest-bearing accounts, according to a document released by the state.
California’s cease-and-desist letter alleges that Nexo has offered and sold “unqualified securities” through its crypto interest account program, “Earn Interest Product,” to U.S.-based users. As of July 31, 2022, over 18,000 California residents have active Earn Interest Product “flex or fixed-term accounts,” collectively holding investments of at least $174.8 million, the document stated.
Vermont, Oklahoma, Kentucky and Washington also filed cease-and-desist motions, among other charges. South Carolina and Maryland also made similar allegations against Nexo on Monday.
“Nexo has always been dedicated to running a sustainable and compliant business and welcomed, even proactively sought, regulatory clarity,” Nexo said in a statement to TechCrunch. “Nexo is committed to finding a clear path forward for the regulated provision of products and services in the U.S., ideally on a federal level.”
Nexo isn’t the first crypto company to land in hot water with U.S regulators over interest-bearing accounts, which have been viewed as securities in select cases in the past.
Crypto lending platform BlockFi was ordered to pay $100 million in a settlement with the U.S. Securities and Exchange Commission and 32 states over a similar issue in February. Regulators at the time said the company wasn’t properly registered to offer its BlockFi Interest Accounts, which claimed to offer customers up to 9.25% interest rates on deposits. In response, BlockFi said it would launch a new SEC-registered product.
And last year, Coinbase nixed the U.S. launch of its Lend program, which would have offered high-yield crypto accounts to users, after the SEC threatened to treat the products as securities.