DFPI Commissioner Clothilde Hewlett said: “The DFPI has undertaken aggressive enforcement efforts against unregistered interest-bearing cryptocurrency accounts. [Nexo’s] crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved.”
Regulators from eight states filed a lawsuit against Nexo for not registering its “Earn Interest Product,” citing that Nexo’s offerings need to be treated as securities. These states include California, Kentucky, Maryland, Oklahoma, South Carolina, Washington, New York, and Vermont.
The cease and desist order concerns Nexo’s high-yield offerings that promise an interest rate of up to 36% (on Axie Infinity tokens).
According to the court filings, Nexo’s interest-earning accounts qualify as securities, with the firm acting as an unlicensed security broker.
The filings claimed that Nexo’s annual interest rates of 36% are much higher than the rates of fixed-income securities. They alleged Nexo violated the Martin Act and Executive Law by acting as a firm licensed by the OAG.
Attorney General Letitia James accused Nexo of unlawful conduct by failing to register as a securities broker, citing,
“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.”
In response, Nexo stated that only a single asset qualifies for the 36% yield rates. It claimed that other currencies such as Bitcoin and Ethereum feature single-digit interest rates.
The crypto lending firm also stated that it is complying with the federal laws, adding,
“Nexo has always been dedicated to running a sustainable and compliant business and welcomed, even proactively sought, regulatory clarity.”
