On Monday, eight states made the announcement that they would sue the bitcoin lending platform Nexo Group for their unlicensed, interest-bearing cryptocurrency product.
State authorities claim that Nexo marketed interest-earning accounts to customers without first registering those accounts as securities and making the requisite disclosures in California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington, and Vermont. State regulators claim that without access to these financial statements, investors cannot make wise investment decisions.
Additionally, it was claimed that Nexo misrepresented the accounts and told investors that its platform was authorised and registered. According to one of the papers, these interest-bearing accounts, often referred to as “Earn Interest Products,” permitted investors to deposit assets with Nexo in exchange for yields of up to 36% on their deposits.
However, Nexo claims that only one asset generates a 36% interest yield and that it does not promote that yield in its marketing materials. According to the business, some of its most well-known assets, such as Bitcoin, barely generate yields in the single digit percentage range.
A few recent crypto bankruptcy this year have prevented investors from accessing their money, prompting the crackdown. After suspending customer assets in June, Celsius, a company that offers comparable interest-bearing accounts, filed for bankruptcy this summer. In July, Voyager, a third company, submitted a Chapter 11 bankruptcy petition. During the weeks following the collapse of the cryptocurrency Terra USD and the failure of the crypto hedge fund Three Arrows Capital, the industry also witnessed billions of dollars lost.
According to Nexo’s terms and conditions, the corporation has “sole and full discretion” to use customer assets.
Investors “have no part in selecting, monitoring, or analysing the revenue-generating operations that Respondents deploy to generate this interest,” according to the Vermont court decision.
As of July 31, 2022, more than 93,318 Americans have deposited more than $800 million into these accounts, according to the Vermont ruling.
Attorney General Letitia James of New York sued the bitcoin company after discovering that more than 10,000 of its citizens were impacted.
Cryptocurrency platforms are not unique; they must register in order to operate similarly to other investment platforms, according to James. “By falsely representing itself as a regulated and registered platform, Nexo broke the law and betrayed the confidence of investors. To safeguard its investors, Nexo must halt its illegal activities and take the necessary steps.
The cryptocurrency lending platform forbade U.S. investors from adding more cryptocurrency to their accounts or investing in the Earn Interest Product in February if they hadn’t previously created a Nexo account. The orders states filed further prohibit Nexo from selling this item to residents until it satisfies the prerequisites for registration.
In a statement, Nexo sought to set itself apart from competing platforms that have had financial difficulties this year.
The company said in a statement: “We have been collaborating with U.S. federal and state regulators and understand their desire, given the current market unrest and bankruptcies of companies offering similar products, to fulfil their mandates of investor protection by examining past behaviour of earn interest product providers.
Nexo is a very different provider of earn interest products, as demonstrated by the fact that it did not engage in uncollateralized loans, had no exposure to LUNA/UST, did not require bailout funds, and did not require the use of any withdrawal restrictions, as the recent months have clearly highlighted.