On Monday, announcements from the offices of eight attorneys general indicated that they sued Nexo Inc. and Nexo Capital Inc. (Nexo), a crypto investment platform with more than 93,000 United States accounts holding assets of approximately $800 million dollars nationally. The suits bring claims for failure to register with states as securities and commodities brokers and for lying to investors about Nexo’s registration status.
Reportedly, the oversight bodies of California, Kentucky, Maryland, New York, Oklahoma, South Carolina, Washington, and Vermont all pursued their own administrative actions against Nexo after conducting a coordinated investigation.
New York Attorney General Letitia James’ lawsuit claims that Nexo, which has about 10,000 New York client accounts, was warned that it must register. Yet its Cayman Islands-based parent company both failed to register and misrepresented to investors that it was a licensed and registered platform.
Nexo reportedly offered and sold securities in the form of an interest-bearing virtual currency account called the “Earn Interest Product” with promises of high returns for participating investors. South Carolina Attorney General Alan Wilson specified that the return rates were advertised at up to 36% on their deposited crypto assets, a rate “significantly higher than rates offered for short-term, investment grade, fixed-income securities or bank savings accounts,” his office’s press release said.
New York’s complaint said the company also engaged in the unregistered purchase and sale of securities and commodities through its virtual currency trading platform called the Nexo Exchange. The suits seek disgorgement of revenue derived from Nexo’s misconduct and restitution for investors.
The state actions follow similar enforcement efforts by both state and federal agencies. For example, South Carolina has taken action against BlockFi Lending and Voyager Digital, the latter of which, alongside billionaire Mark Cuban, was sued privately by investors after its massive collapse.
For its part, the SEC has seen a major uptick in registration-related actions against crypto firms, including its $100 million fine against BlockFi. Other notable suits include the agency’s targeting of Ormeus Global and Forsage for both registration violations and fraud.