Crypto platform Nexo sued by New York, California and six other US regulators • TechCrunch

Crypto platform Nexo is being sued by eight US 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 is trying to force Nexo to forfeit the earnings from its “Earn Interest Product” crypto deposit accounts and provide financial restitution to customers who used it, according to the complaint. Nexo announced that the product could give users a return of up to 36%, CNBC reported Monday.

Since Nexo launched in 2018, it has supported over 50 cryptocurrencies, operated across around 200 jurisdictions, gained 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 issued 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 to be a licensed and registered platform. Nexo must stop its illegal operations and take necessary action to protect their 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 offered and sold “ineligible securities” through its crypto-interest account program, the “Earn Interest Product,” to US-based users. As of July 31, 2022, more than 18,000 California residents have active “flex or term accounts” with earn-interest products, which collectively have at least $174.8 million in investments, the document said.

Vermont, Oklahoma, Kentucky and Washington have also filed cease-and-desist motions, among other allegations. South Carolina and Maryland also made similar charges 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 delivery of products and services in the United States, ideally at the federal level.”

Nexo is not the first crypto company to land in hot water with US 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 US Securities and Exchange Commission and 32 states over a similar case in February. Regulators at the time said the company was not properly registered to offer its BlockFi interest-bearing accounts, which claimed to offer customers up to 9.25% interest on deposits. In response, BlockFi said it would launch a new SEC-registered product.

And last year, Coinbase rejected the US 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.