On Monday, California and several other state regulatory bodies scrutinizing securities said they were going after Nexo Group, the parent of the company, for allegedly offering interest-earning accounts through unregistered securities.
Eight states, including California, Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont, are suing the company for this violation. New York hopes to permanently prohibit Nexo, which has more than 5 million users and handles more than $3.8 billion in digital assets from selling any securities in the future.
Until Nexo complies with registration rules, the company can not offer interest-bearing accounts to citizens of the aforementioned eight states. The company is currently battling several cease- and- desist orders across the states for failing to make the necessary disclosures to customers.
Earn interest products that allowed users to earn yields as high as 36% on deposits are known as earn interest products.
New York Attorney General Letitia James said that cryptocurrencies platforms are not exceptional and must be registered to operate like other investment platforms. Nexo was falsely claiming that it is a licensed and registered platform and that it was a violation of the law and investors trust. Nexo must stop its operations and take necessary action to protect its investors. The move came after several high-profile collapses of businesses in the industry, particularly Celsius, which also offered interest-bearing accounts.
The Vermont filing pointed out that investors have no role in selecting, monitoring, or reviewing the revenue-generating activities that Respondents use to earn interest. Nexo, however, said it has been cooperating with government regulators and underlines that it is not one of the companies that need external help as a result of the collapse of the algorithmic stable coin Terra earlier this year.
We have been working with U.S. federal and state regulators to fulfill their mandates of investor protection by looking at past behavior of providers of earn interest products, despite the current market turmoil and bankruptcies of companies offering similar products.
As the recent months have highlighted, 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 or Terra, did not need to resort to any withdrawal restrictions.