Regulators in eight U.S. states have required crypto lending platform Nexo to stop promoting interest-bearing crypto-currency products that fall under the Securities Act.
Lawsuits against Nexo have been filed in New York, California, Oklahoma, Maryland, Kentucky, South Carolina, Vermont and Washington. Regulators accuse the crypto lender of offering clients the services of opening interest-bearing deposit accounts within their jurisdiction without proper registration.
Of particular concern to regulators was the fact that Nexo claims a yield of 36% per annum on crypto assets deposited by investors. This is many times higher than the rates for short-term fixed income investment grade securities or bank savings accounts. Deposit accounts allow investors to deposit crypto assets with Nexo and in return earn passive interest income on those deposits.
The lawsuits allege that Nexo is withholding material information from investors that is necessary to assess the risks that the provider of escrow funds and the receiving party assumes. Regulators argue that without access to these financial statements, investors cannot make informed investment decisions. In addition, Nexo deliberately misleads investors by claiming that it is a licensed and registered platform.
“I am suing the Nexo crypto platform for not registering in my office and for lying to investors about it. Nexo took advantage of investor confidence by falsely claiming to be a licensed and registered platform,” said New York Attorney General Letitia James.
Commenting on the allegations, Nexo stated that the 36% interest rate only applies to one asset and that the platform has never advertised the high rate for promotional purposes. For most of the assets on the platform, the offered rates are in single digit percentages, Nexo said.
The company denied the allegations and stressed that it had never been involved in dubious projects, and had nothing to do with the collapse of Terra. In addition, Nexo “works closely with US federal and state regulators and understands their aspirations, given the current market turmoil and bankruptcies of crypto companies.”
In July, cryptocurrency lending platform Nexo, amid a wave of defaults of crypto projects, announced its intention to take market share of its Singaporean competitor Vauld.
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