The California Department of Financial Protection (DFPI) has issued a cease and desist order against crypto lender Nexo Group for offering yield-bearing accounts.
According to the DFPI, Nexo has offered the Earn Interest Product, which offers returns of up to 36%. without telling customers that the associated accounts are securities. The filings also allege that Nexo misled customers that it operated a licensed and registered platform.
“The DFPI has undertaken aggressive enforcement efforts against unregistered interest-bearing cryptocurrency accounts. These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved,” said DFPI Commissioner Clothilde Hewlett in an official statement.
According to the DFPI order, Nexo offers flex-term and fixed-term interest-bearing accounts that offer interest of 36% and over, depending on the investor’s loyalty tier, amongst other things.
Additionally, Nexo has also fallen afoul of state regulators in Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington, and Vermont, which allege that Nexo did not provide customers access to appropriate disclosures, preventing them from making sound investment decisions.
DFPI alleges Earn Interest accounts are still active
Twitter user and crypto commentator @oldmantravel tweeted affirmatively, “Nexo Earn Product is not available for citizens or residents of certain jurisdictions, including where restrictions may apply, such as Bulgaria, Estonia, and the USA,” quoting Nexo’s website.
According to the DFPI, however, due to a renewal option, some customers with fixed-term Earn Interest accounts whose term ended on or before Feb. 19, 2022, chose to renew their accounts for another term, seemingly disproving Nexo’s claim.
At the time of writing, Californian residents held $174,800,000 in Nexo accounts.
According to Nexo’s terms and conditions, it can use customer assets at its discretion.
No securities-related licenses
According to Nexo’s website, the company holds different licenses in different U.S. states, including Money Transmitter, Financing Law, Money Lender, and Supervised Loan licenses. However, further scrutiny reveals that the licenses bear no relevance to offering securities.
The company summarizes its compliance responsibilities concerning minimum operational capital, audits, anti-money laundering measures, and cybersecurity.
The company did not publish an official response to the order at the time of writing.