California, New York, and South Carolina among the states that consider to take legal action against cryptocurrency lender platform Nexo

Several U.S. jurisdictions, including California, New York, and South Carolina, could pursue legal action against Nexo, a platform for lending cryptocurrencies.

California Department of Fish and Game issued a Cease and Desist

On September 26, 2022, the California Department of Financial Protection and Innovation (DFPI) issued an immediate cease and desist order against Nexo for violating California Corporations Code section 25110.

A snapshot taken on July 31, 2022, according to the California Cease and Desist lawsuit, revealed that more than 18,000 ambitious California residents had created an active account with the cryptocurrency lender. Nexo had two account types: Earn Interest Product Flex and Fixed-Term. As of the snapshot taken at the end of July, the crypto accounts earning income had more than 170 million dollars in investment money.

Nexo’s Offense

The interest-bearing crypto accounts allowed users to deposit their digital assets with an annualized interest rate of 36%, which is absurdly greater than the rates offered by basic, regulated financial institutions such as banks, investment-grade securities, and fixed-rate debt. The DFPI deduced that Nexo, a cryptocurrency lender, provided high-risk investing services without originally classifying interest-bearing accounts as securities.

If Nexo declares the consumer accounts as collateral, the lender would be required by U.S. law to ensure that potential investors receive all the necessary information (including the risks involved and the provider’s plans for the investor-raised funds) to make an informed decision about whether to invest or not.

New York’s Continuation

New York Attorney General Letita James issued a different statement in a lawsuit against Nexo crypto lender almost immediately. In this case, the attorney described Nexo’s breach of the Martin Act Executive Law of New York. Letita stated that Nexo was doing illegal activities by selling unregistered broker and dealer services.

Nexo allegedly misled investors into depositing their cryptocurrency with them by falsely claiming to possess the required licenses and registration certificates. James asserted that the lender must comply with U.S. law and safeguard its interests.

The Collective Struggle Against Nexo

Vermont subsequently issued a Cease and Desist injunction. Washington has issued a separate Cease and Desist order over the same subject. Due to the previously publicized reports, the remaining states of Oklahoma, South Carolina, Maryland, and Kentucky launched legal measures against the cryptocurrency lender.

The severe fines imposed on the cryptocurrency lender are a result of the recent rise in popularity of BlockFi, Voyager, and Celsius, three other cryptocurrency lenders.

In the ongoing Celsius lawsuit, all three crypto lenders have filed for chapter 11 bankruptcy protection. BlockFi was compelled to pay a fine in excess of $100,000 for failing to register investor securities. The company gained approval from U.S. regulators to offer and sell securities without registration and licensing.

In contrast, Celsius surprised the whole cryptocurrency community. According to the company’s bankruptcy filings, it had $5.5 billion in liabilities and $4.3 billion in assets, a significant drop from its previous value of $25 billion.

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