California Regulator Files Desist and Refrain Order Against Nexo

The state’s Department of Financial Protection and Innovation alleges the crypto company’s interest accounts are unqualified securities

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Source: DALL·E

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key takeaways

  • More than 18,000 California residents had Nexo interest accounts as of July 31, the California regulator alleges
  • DFPI has issued similar actions against BlockFi, Voyager Digital and Celsius Network

California’s Department of Financial Protection and Innovation (DFPI) has filed a desist and refrain action against crypto platform Nexo for allegedly offering interest accounts to the state’s residents without qualifying them as securities.

Nexo has offered annual interest rates of up to 36% on investors’ deposited cryptoassets, DFPI said in the order, filed Monday.

“These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved,” DFPI Commissioner Clothilde Hewlett said in a statement.

“Collectively, these actions protect investors while ensuring that California remains an ideal setting for responsible financial innovation,” she said. 

State securities regulators of New York, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont also filed administrative actions against Nexo Monday.

BlockFi agreed in February to pay $100 million in penalties to the SEC and other state regulators after its lending product was deemed a security. A Nexo spokesperson told Blockworks that since the SEC’s guidance on earn products that month, the company has voluntarily halted US client onboarding for its interest-earning products and stopped existing clients from adding to the accounts.

“We have been working with US federal and state regulators and understand their urge, given the current market turmoil and bankruptcies of companies offering similar products, to fulfill their mandates of investor protection by examining past behavior of providers of earn interest products,” the representative said. “Nexo is committed to finding a clear path forward for the regulated provision of products and services in the US, ideally on a federal level.”

Though Nexo said that it stopped offering these accounts to US residents in February, DFPI claims in the order that such customers have continued using them through Nexo’s automatic renewal feature.

The document claims that, as of July 31, more than 18,000 California residents had these Nexo accounts. Investments in the accounts total at least $175 million, it states.

The DFPI licenses and regulates financial services, including state-chartered banks, credit unions, money transmitters, securities broker-dealers and investment advisors. 

The order against Nexo comes after DFPI said in July that it would investigate whether companies offering interest-bearing cryptoasset accounts were violating laws under the department’s jurisdiction. 

DFPI has issued similar actions against BlockFi, Voyager Digital and Celsius Network earlier this year. While BlockFi was hit with fines, Voyager Digital and Celsius filed for bankruptcy in July.

The legal action also follows California Gov. Gavin Newsom vetoing a bill that would have made crypto companies get a license before offering services or digital assets to the state’s residents.


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