Eight states in the US are bringing action against Nexo, a crypto lending platform, for its unregistered, interest-bearing crypto product. New York, Kentucky, Maryland, California, Oklahoma, Washington, South Carolina, and Vermont state regulators alleged that Nexo offered customers interest-earning accounts without first registering them as securities and providing necessary disclosures.
The state regulators believe that investors cannot make informed investment decisions without access to financial statements. Moreover, the states alleged that Nexo misrepresented the accounts and suggested to investors that it is a licensed and registered platform. Investors through Nexo’s “Earn Interest Product” deposited assets with the crypto lender in exchange for earning yields as high as 36% on their deposits.
But Nexo says that only one asset earns an interest rate of 36% and it does not advertise that yield in its marketing materials. It highlighted that some of its most popular assets like Bitcoin only earn yields in the single-digit percentages. Moreover, Nexo’s terms and conditions stated that the company had the ability to deploy customer assets at its sole and absolute discretion. The Vermont filing outlined that investors have no part in selecting, monitoring, or reviewing the revenue-generating activities that Respondents utilize to earn this interest. It said that as of July 31, 2022, over 93,300 US residents invested more than $800 million in these accounts.
New York’s Attorney General Letitia James, in the lawsuit against Nexo, said more than 10,000 residents have been affected. He believes cryptocurrency platforms are not exceptional and must register to operate just like other investment platforms. James highlighted that Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. The AG said Nexo must stop its unlawful operations and take necessary action to protect the investors. The crypto lending platform prevented US investors who had not yet opened a Nexo account in February from investing in the Earn Interest Product or adding additional cryptocurrency into their accounts.
As such, Nexo is further prevented from offering this product to residents until it meets the necessary registration requirements.