(Reuters) – Eight U.S. regulators on Monday accused crypto lender Nexo Group of allegedly failing to record an interest-earning product, as authorities cracked down on digital asset platforms due to the crypto winter in recent months.
Regulators from New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont have filed administrative lawsuits against the company, saying that its accounts would qualify as securities and should be registered as such.
“Nexo violated the law and investor confidence by falsely claiming that it was a licensed and registered platform,” New York Attorney General Letitia James said, adding that it has filed a lawsuit against the company and is seeking to “revoke any proceeds resulting from Nexo’s illegal conduct.”
In February, BlockFi agreed to pay $100 million in a landmark settlement with the US Securities and Exchange Commission and state authorities that said its interest-bearing product should have been registered as collateral.
Since then, digital asset platforms have been seeking more clarity on the rules governing such products, saying that current regulations remain unclear.
“Since the Securities and Exchange Commission (SEC) guidance on earning products in February 2022, Nexo has voluntarily discontinued the inclusion of new US customers for our interest earning product as well as discontinued the product to obtain new credits for existing customers,” the company said.
Nexo interest accounts promise an annual interest rate of up to 36%, according to the California Department of Financial Protection and Innovation.
However, the company said the 36% interest only applies to one asset, and it doesn’t advertise the high price. For the majority of assets on its platform, Nexo said, the quoted prices are in single digit percentages.
The regulatory crackdown comes amid a crypto winter that has seen steep price drops this year as risk-off sentiment and fears of an impending recession crush risky assets, forcing some companies into bankruptcy.