Letitia James, the attorney general of New York, is suing the cryptocurrency startup Nexo because it deceived customers by claiming to be registered to sell securities and commodities but not services like its “Earn Interest Product,” which promised returns on deposited cryptocurrency. The struggle between authorities and cryptocurrency companies aiming to offer interest-earning accounts, frequently contending 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. To safeguard its investors, Nexo must halt its illegal activities and take the necessary steps.
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 reacted at the time by saying it was already preventing residents of New York from using its service. That was untrue, according to the lawsuit. 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 informing its clients there. The AG asserts that Nexo’s data submitted to 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.
After the Securities and Exchange Commission released its guidance on crypto products offering interest in February 2022, Nexo voluntarily stopped allowing new US customers access to its Earn Interest Product.” 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,” the statement by spokesperson Magdalena Hristova gave to the verge. The lawsuit claims that the company misrepresented and omitted information about its products “legal compliance,” but the statement does not address these allegations.
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.
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