New York State Attorney General Letitia James speaks at a news conference after former US President Donald Trump’s chief White House strategist Steve Bannon arrived to surrender in New York, the United States, on September 8, 2022.
Caitlin Ochs | Reuters
On Monday, eight states announced lawsuits against crypto-lending platform Nexo Group over its unregistered cryptocurrency interest product.
State regulators in California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont allege that Nexo offered customers interest-bearing accounts without first registering them as securities and providing required information. State regulators say that without access to these financial statements, investors could not make informed investment decisions.
The documents also allege that Nexo told investors that they were a licensed and registered platform.
These interest-bearing accounts, known as the “Interest Earning Product,” allowed investors to invest assets in Nexo in exchange for a return of up to 36% on their deposits.
Nexo’s terms and conditions say the company has the ability to deploy customer assets at its “sole and absolute discretion.”
According to the order filed in Vermont, “investors are not involved in selecting, monitoring or reviewing the profitable activities that respondents use to earn interest.”
The Vermont order said that as of July 31, 2022, more than 93,318 U.S. residents had invested more than $800 million in these accounts.
The New York attorney general sued the cryptocurrency platform in response to more than 10,000 of its residents being affected.
“Cryptocurrency platforms are not exclusive; they have to register to operate just like other investment platforms,” said New York Attorney General Letitia James. “Nexo violated the law and the trust of investors by falsely claiming to be a licensed and registered platform. Nexo must stop its illegal activities and take the necessary steps to protect its investors.”
In February, Nexo prohibited US investors who had not yet opened a Nexo account from investing in the Earn Interest product or adding additional cryptocurrency to their accounts. The orders placed also prevent Nexo from offering this product to residents until it meets the registration requirements.
In a statement, Nexo differs from other platforms that have faced financial difficulties: “We are working with US federal and state regulators and understand their desire, given the current market turmoil and bankruptcies of companies offering similar products, to fulfill their responsibilities to protect investors by examining past the behavior of interest-earning product providers… As has been made clear in recent months, Nexo is a completely different interest-earning product provider, as evidenced by the fact that it did not deal in unsecured loans, had no contact with LUNA /UST, did not need to bail out or resort to any withdrawal restrictions.”