Regulators of California, New York, and six other states filed a lawsuit against crypto-lending platform Nexo group because of its unregistered, interest-bearing cryptocurrency product, according to Reuters.
The six other states are Washington, Maryland, South Carolina, Oklahoma, Vermont, and Kentucky.
State Regulators from Eight States File Administrative Case Against Nexo
State regulators from the eight states claimed that Nexo did not register customer interest-earning accounts as securities and provide necessary disclosures but already offered them to customers, as per CNBC.
According to state regulators, without access to these financial statements, investors cannot make informed investment decisions. With this, regulators from the eight states all filed the administrative case against Nexo.
"Nexo violated the law and investors' trust by falsely claiming it is a licensed and registered platform," New York Attorney General Letitia James said.
James added that she had filed a case against Nexo and was seeking "disgorgement of any revenues derived from Nexo's unlawful conduct."
The filings also claimed that Nexo did not represent the accounts properly. Moreover, the cryptocurrency company reportedly made investors believe that it is a licensed and registered platform.
According to California's Department of Financial Protection and Innovation, the interest accounts of Nexo claimed it would offer an annual interest rate as high as 36%.
However, the cryptocurrency company stated that the 36% interest was only applicable for one asset. Only single-digit percentages are being offered to the rates of the majority of assets on its platform.
The regulatory crackdown happened amid a crypto winter. A handful of recent crypto bankruptcies were observed this year. Because of this, investors are left without access to their funds.
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Nexo Claims it is Different from Other Cryptocurrency Companies
New York Attorney General sent a letter to Nexo and the now-in-bankruptcy Celsius last year. The letter is ordering the companies to no longer provide services "they weren't authorized to offer in New York," according to The Verge.
Nexo claimed that it stopped offering services to New Yorkers by blocking them from accessing its service. However, according to the lawsuit, this is, in fact, not true.
The suit stipulated that Nexo informed the attorney general's office that it notified the New York citizens about their accounts being no longer accessible and that all the services were shut down by November 11, 2021.
However, according to the attorney general, Nexo still had over "5,000 EIP accounts funded by New York investors" in July 2022.
In a statement, Nexo claimed that their company is not similar to the other platforms that encountered financial problems this year.
The company said that they have been working with the U.S. federal and state regulators. Thus, they understand their urge to fulfill their duties to protect the investors.
This is amid the current problems in the crypto market and the bankruptcies of companies.
Nexo claimed that the company is not similar to other providers of earn interest products. The company said that it did not engage in uncollateralized loans, had no exposure to LUNA/UST, and did not have to be bailed out.
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