California issues order on Nexo’s interest rate tag, says it’s 8th state to take action

The California Department of Financial Protection and Innovation (DFPI) has filed a cease-and-desist order against crypto lending platform Nexo as part of its ongoing investigation into companies offering interest-bearing crypto asset accounts. The agency said it is joining regulators in seven other US states to take action against the company. Other states involved are Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont, according to CNBC.

DFPI claims Nexo’s Earn Interest Product is a non-qualified security, i.e., a security not cleared for sale by the government, under an investment contract. The product offered up to 36% interest per annum.

In the year As of February 19, the product was not available to new users in the US, and existing US account holders were unable to make new deposits to their accounts due to the $100-million fine imposed on BlockFi by the Securities and Exchange Commission. After finding the BlockFi interest account to be an unregistered security. However, the DFPI filing says Nexo account holders with automatic renewals continue to receive interest payments.

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The DFPI announced in July that it would begin investigating companies offering so-called crypto-interest accounts. In a statement announcing the action against Nexo, DFPI Commissioner Clotilde Hewlett said:

“These crypto-interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risks involved.”

Nexo told Cointelegraph: “We have been working with US federal and state regulators and we understand their needs, given the current market volatility and losses of companies offering similar products, by examining the past behavior of suppliers to meet their investor protection obligations.” Find products of interest. […] As has been made clear in recent months, Nexo is a very different provider of interest products, which is not involved in unsecured loans, has no exposure to LUNA / UST, does not require a bailout. To use any withdrawal limits.

The DFPI issued a consent order against Celsius Network on August 8, alleging that the company and its CEO, Alex Mashinsky, made misrepresentations and omissions when presenting crypto interest accounts. Celsius filed for bankruptcy on July 14.

DFPI also filed a cease and desist order against Voyager Digital dated June 3, a month before that company filed for bankruptcy. California Governor Gavin Newsom on September 23 vetoed a bill to establish a state licensing and regulatory framework for digital assets, calling the move “premature.”