As part of its ongoing investigation of companies that offer crypto assets accounts that earn interest, the California Department of Financial Protection and Innovation (DFPI) has filed a “cease and desist” order against the crypto lending platform Nexo. The agency says it is taking action against the company along with regulators from seven other states in the United States. CNBC says that Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington, and Vermont are the other states that are involved.
In the filing, the DFPI said that Nexo’s Earn Interest Product was an unqualified security. This means that the government has not given the security permission to be sold as an investment contract. The product had offered interest rates of up to 36% per year.
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Since February 19, the product has not been available to new users in the United States, and existing U.S. account holders have not been able to add new funds to their accounts. This is because the Securities and Exchange Commission fined BlockFi $100 million because the BlockFi Interest Account was an unregistered security. But the DFPI filing says that people who had Nexo accounts that were set up to automatically renew kept getting interest payments.
In July, the DFPI said it would start looking into companies that had so-called crypto-interest accounts. In a statement about the action being taken against Nexo, DFPI Commissioner Clothilde Hewlett said:
“These crypto interest accounts are securities, so investors have rights under the law, such as being told enough about the risks.”
Nexo said in a statement to Asian Trade, “We have been working with U.S. federal and state regulators, and we understand their desire to protect investors by looking at the past behaviour of providers of earn interest products. This is because the market is in turmoil right now, and companies that offer similar products have gone bankrupt.” […] As the past few months have shown, Nexo is a very different company that offers products that earn interest. This is clear from the fact that it did not offer unsecured loans, had no exposure to Terra (LUNA)/TerraUSD (UST), did not need to be bailed out, and did not have to limit withdrawals.
The DFPI sent a consent order to Celsius Network on August 8. The order said that the company and its CEO, Alex Mashinsky, lied and left out important information when they sold crypto interest accounts. The company went bankrupt on July 14.
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On June 3, about a month before Voyager Digital filed for bankruptcy, the DFPI also sent a “cease and desist” order to that company. On September 23, California Governor Gavin Newsom vetoed a bill that would have set up a state licencing and regulatory framework for digital assets. He said the move was “too soon.”