State securities regulators in California and several other states took action against Nexo Group, the parent company of crypto lender Nexo, on Monday, calling the company’s Earn Interest Product an unregistered security.
“These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved,” California Department of Financial Protection and Innovation (DFPI) said in a press release.
The DFPI release mentions Nexo’s interest rates of up to 36% are “significantly higher than the rate on short-term, investment-grade, fixed-income securities or bank savings accounts,” regulators wrote in the release.
Nexo CEO Antoni Trenchev told Decrypt in a text message that the company has been working with federal and state securities regulators to make its Earn Interest products compliant.
“Since the SEC guidance on earn products, dubbed “The BlockFi Order” in February 2022, Nexo has voluntarily ceased the onboarding of new US clients for our Earn Interest Product as well as stopped the product for new balances for existing clients,” Trenchev 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,” said Trenchev. (Disclosure: Nexo is one of 22 investors in Decrypt.)
BlockFi Had $600 Million in Crypto Loans Not Covered by Collateral in Q2
Crypto lending platform BlockFi held “loan exposure” totaling $600 million by the end of June, according to the company’s “Q2 2022 Transparency Report,” released on Friday. The report showed BlockFi held an institutional and retail loan portfolio totaling $1.8 billion, with $1.2 billion in loan collateral. The firm defines its net “exposure” to a loan counterparty as “the fair value of loans to the counterparty minus the fair value of collateral posted by the counterparty.” This means that over...
The California securities regulator was joined by Vermont, Oklahoma, South Carolina, Kentucky, and Maryland in filing cease-and-desist orders against the company. At the time of this writing, Nexo’s Licenses and Registrations says that the company is registered to operate in California, Oklahoma, South Carolina, and Maryland.
Washington State, which had not yet filed its own cease-and-desist order, published a statement of charges. On Monday afternoon, New York State Attorney General Letitia James announced that the state was suing Nexo for, among other charges, “falsely representing that it complies with applicable regulations and licensing requirements.”
BlockFi CEO Doesn’t Want to Be Compared to Voyager, Celsius
BlockFi CEO Zac Prince wants to make clear that his lending company, which last week finalized terms for a loan from—and potential acquisition by—one of Sam Bankman-Fried’s companies, isn’t like Voyager Digital, which also received a loan from one of Bankman-Fried’s companies. If those two crypto firms sound like they’re in similar situations, it’s because, in some ways, they are. But Prince doesn’t see it that way. In a short Twitter thread Monday morning he called on journalists and market com...
In June, the crypto lending segment was in upheaval.
Celsius had frozen accounts, Voyager Digital had filed a default notice on insolvent hedge fund Three Arrows Capital, and BlockFi had secured a bailout deal from CEO Sam Bankman-Fried’s FTX. At the time, Nexo was battling rumors that it didn’t have the funds to back all of its obligations to account holders. Since then, Celsius and Voyager Digital have filed for bankruptcy.
