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 accounts. The agency says it is joining regulators in seven other US states in taking action against the company. The other states involved are Kentucky, New York, Maryland, Oklahoma, South Carolina, Washington and Vermont, according to CNBC.
The DFPI alleged in the filing that Nexo’s Earn Interest product was an unrated security, that is, a security that has not been authorized by the government for sale, in the form of an investment contract. The product offered up to 36% annual interest.
The product has not been available to new users in the United States since February 19, and existing US account holders have been unable to make new deposits to their accounts, following the $100 million fine imposed on BlockFi by the Commission of Bolsa y Valores after it considered that the BlockFi interest account was an unregistered security. However, the DFPI filing states that auto-renewing Nexo account holders continued to receive interest payments.
The DFPI announced in July that it would begin investigating companies offering so-called “cryptocurrency interest accounts.” DFPI Commissioner Clothilde Hewlett said in a statement announcing the action against Nexo:
“These crypto interest accounts are securities and are subject to investor protection under the law, including proper disclosure of the risk involved.”
The DFPI issued a consent order against Celsius Network on August 8, alleging that the company and its CEO Alex Mashinsky made false statements and omissions in their crypto interest account offerings. Celsius filed for bankruptcy on July 14.
The DFPI also filed a cease and desist order against Voyager Digital on June 3, about a month before Voyager Digital filed for bankruptcy. California Governor Gavin Newsom on Sept. 23 vetoed a bill to establish a state licensing and regulatory framework for digital assets, calling the move “premature.”
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