The California Department of Financial Protection and Innovation (DFPI) has filed a cease and refrain action against crypto platform Nexo for allegedly offering interest accounts to the state’s residents without qualifying them as securities.
State securities regulators of New York, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont also filed administrative actions against Nexo.
Clothilde Hewlett, the DFPI Commissioner said, “The DFPI has undertaken aggressive enforcement efforts against unregistered interest-bearing cryptocurrency accounts.”
Nexo offered up to 36% interest annually as part of its Earn Interest Product, which the DFPI claims was an unqualified security.
Hewlett further said, “These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved. Collectively, these actions protect investors while ensuring that California remains an ideal setting for responsible financial innovation.”
The California DFPI has already conducted investigations and taken action against various crypto firms, including BlockFi and Voyager Digital.
The department determined that certain crypto interest accounts from those platforms were unregistered securities.
BlockFi ultimately agreed to pay $100 million in penalties to the SEC and other regulators in February.
Nexo discontinued the Earn Interest Product accounts for its U.S. customers since February 19, and existing U.S. account holders were unable to make new deposits into their accounts.
However, according to the DFPI filing Nexo account holders with automatic renewal continued to receive interest payments.
“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” said a Nexo representative.
“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.”
