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 necessary information. Without access to these financial statements, state regulators argue that investors cannot make informed investment decisions.

The documents also alleged that Nexo misrepresented the accounts and suggested to investors that it was a licensed and registered platform. These remunerated accounts, known as “Earn Interest Product,” allowed investors to deposit assets with Nexo in exchange for returns of up to 36% on their deposits, according to one of the filings.

Nexo, however, claims that a single asset pays an interest rate of 36% and it does not advertise this yield in its marketing materials. The company claims that some of its most popular assets, like Bitcoin, only earn returns in the single digit percentages.

The crackdown comes as a handful of recent crypto bankruptcies this year have left investors without access to their funds. Celsius, which offered similar interest-bearing accounts, filed for bankruptcy this summer after freezing client funds in June. A third company, Voyager, filed for Chapter 11 bankruptcy in July. The industry has also seen billions of dollars wiped out in the weeks surrounding the implosion of the Terra USD cryptocurrency and the failure of crypto hedge fund Three Arrows Capital.

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 these accounts.

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

“Cryptocurrency platforms are not exceptional; they must register to operate like other investment platforms,” ​​James said in a statement. “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, the crypto-lending platform 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 sought to differentiate itself from other platforms that have encountered financial problems this year.

“We have worked with U.S. federal and state regulators and understand their urge, given the current market turmoil and bankruptcies of companies offering similar products, to fulfill their investor protection mandates by reviewing the past behavior of service providers. interest products,” the company said. said in a statement.

“As the past few months have made clear, Nexo is a very different provider of interest-bearing products, as evidenced by the fact that it has not engaged in unsecured lending, had no exposure to LUNA/UST, did not have to be bailed out, or required to resort to withdrawal restrictions.”

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