California issues cease, refrain order to Nexo over offering clients an Earn Interest Product

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Nexo revealed that it stopped onboard­ing new U.S. clients to its Earn Inter­est Prod­uct in Feb­ru­ary 2022 after finan­cial reg­u­la­tors in eight states ini­ti­at­ed legal actions against it.

Accord­ing to the U.S., Nexo vio­lat­ed secu­ri­ties law by offer­ing their res­i­dents inter­est-bear­ing cryp­to accounts.

California issues cease and refrain order

California’s Depart­ment of Finan­cial Pro­tec­tion and Inno­va­tion issued a cease and refrain order on Sept. 26 for the cryp­to firm. Accord­ing to the order, Nexo’s Earned Inter­est Prod­uct accounts are unreg­is­tered secu­ri­ties “offered and sold with­out pri­or qualifications.”

The order not­ed that over 18,000 Cal­i­for­nia res­i­dents have active Earn Inter­est Prod­uct flex-or fixed-term accounts with Nexo, to the tune of $174,800,000.

A press release from the DFPI con­firmed that it had joined sev­en oth­er state secu­ri­ties reg­u­la­tors to bring the action against Nexo.

Accord­ing to DFPI Com­mis­sion­er Clothilde Hewlett, the reg­u­la­tor is increas­ing its reg­u­la­to­ry scruti­ny “against inter­est-bear­ing cryp­tocur­ren­cy accounts.”

New York announces lawsuit against Nexo

New York Attor­ney Gen­er­al Leti­tia James also announced a law­suit against the cryp­to lender in a relat­ed development.

The reg­u­la­tor stat­ed that Nexo failed to reg­is­ter with the state as a secu­ri­ties and com­modi­ties bro­ker despite sev­er­al warn­ings from the AG office and lied to investors about its reg­is­tra­tion status.

The Attor­ney Gen­er­al said:

“Nexo vio­lat­ed the law and investors’ trust by false­ly claim­ing it is a licensed and reg­is­tered plat­form. Nexo must stop its unlaw­ful oper­a­tions and take nec­es­sary action to pro­tect its investors.”

Other states filed an action against Nexo

Mean­while, oth­er U.S. states like Ver­mont, Mary­land, South Car­oli­na, Okla­homa, Ken­tucky, and Wash­ing­ton have also issued an enforce­ment action against the cryp­to lender.

Accord­ing to these states, Nexo activ­i­ties with­in their juris­dic­tion were ille­gal as it was not reg­is­tered with the authorities.

Nexo says it is different from rivals

Nexo told Cryp­toSlate that it was dif­fer­ent from oth­er strug­gling cryp­to lenders who suf­fered from their expo­sure to Terra.

Nexo said:

“(We are) very dif­fer­ent provider of earn inter­est prod­ucts, as show­cased by the fact that (we) did not engage in uncol­lat­er­al­ized loans, had no expo­sure to LUNA/UST, did not have to be bailed out or need­ed to resort to any with­draw­al restrictions.”

The firm has been work­ing with reg­u­la­tors to boost investors’ pro­tec­tion efforts.

Mean­while, sev­er­al cryp­to lend­ing firms, includ­ing Block­Fi, Voy­ager Dig­i­tal, and Cel­sius, have faced inves­ti­ga­tions from reg­u­la­tors in the past.

Block­Fi paid $100 mil­lion in fines to the SEC and some state reg­u­la­tors, while the oth­er two com­pa­nies are cur­rent­ly under­go­ing a bank­rupt­cy process.

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