New York Attorney General Letitia James is suing cryptocurrency company Nexo, alleging that the company misled customers by claiming to be registered to sell securities and commodities when it wasn’t and that it wasn’t authorised to offer services such as its “Earn Interest Product,” which promised returns on deposited cryptocurrency. The struggle between authorities and cryptocurrency companies aiming to offer interest-earning accounts, frequently insisting that they shouldn’t be categorised as securities, is at its newest stage in court.
According to a press release from the New York AG, seven additional states, including California, Kentucky, Maryland, Oklahoma, South Carolina, Washington, and Vermont, are also taking “administrative measures” against the business. James is also quoted in the press release as saying: “By falsely representing itself as a regulated and registered platform, Nexo broke the law and investors’ confidence. Nexo must halt its illegal activities and take the necessary steps to protect its investors.
In a letter issued to Nexo and the now-bankrupt Celsius last year, James demanded that the exchanges stop providing services they were not authorised to provide in New York. Nexo responded at the time by stating that it was already preventing New York residents from using its service. That was untrue, according to the lawsuit, which you can read in full below. According to the lawsuit, Nexo notified the attorney general’s office that it was shutting down all of its services in New York by November 11, 2021, and that it was notifying its clients there. The AG asserts that Nexo’s data it submitted authorities showed it still had more than “5,000 EIP accounts backed by New York investors” in July 2022.
The lawsuit also asserts that Nexo misrepresented its status as a “Licensed & Regulated Digital Assets Institution.” As of the time of writing, the company’s website mentions the licences it has to operate and states that it is “fully compliant with all applicable global and local legislation and standards” for the regions it operates in. According to the New York AG, licences from South Carolina, Maryland, and Oklahoma, states that are also filing complaints against the business, are included on that list.
The company is “working with US federal and state regulators and understand their urge, given the current market turmoil and bankruptcies of companies offering similar products, to fulfil their mandates of investor protection by examining past behaviour of providers of earn interest products,” according to a statement from Nexo spokesperson Magdalena Hristova, sent via email to The Verge.
The Securities and Exchange Commission issued recommendations on cryptocurrency products paying interest in February 2022, at which point Nexo voluntarily stopped allowing new US consumers access to its Earn Interest Product. Nexo is dedicated to identifying a clear future course for the regulated provision of goods and services in the US, ideally on a federal level, the statement says. The lawsuit’s claim that the company misrepresented and omitted information concerning the “legal compliance” of its products is not addressed by the statement.
BlockFi, a cryptocurrency exchange, was forced to pay the SEC $100 million in fines earlier this year after the commission determined that the company’s BlockFi Interest Accounts were unregistered securities and that it lacked the necessary registration to offer financial services. If Coinbase implemented a similar programme in 2021, the agency also threatened to sue the company.
