The California Department of Financial Protection and Innovation (DFPI) announced it entered into a settlement agreement with Nexo Capital to resolve its securities enforcement action in connection to Nexo’s Earn Interest Product program.
Nexo is a crypto-asset financial services company which operated in the United States as well as several other countries. One of the products it offered to U.S.-based consumers was Nexo’s Earn Interest Product which offered investors an interest-bearing crypto-asset account.
A North American Securities Administrators Association (NASAA) working group – composed of DFPI and state regulators from Washington, Kentucky, New York, Oklahoma, Indiana, Maryland, South Carolina, Vermont, and Wisconsin – led an investigation into this interest-bearing product.
From September through November 2022, these regulators brought actions against Nexo, concluding the Earn Interest Product accounts are securities and require investor protections such as registration and risk disclosures before they can be offered and sold to investors.
The NASAA working group negotiated a $22.5 million multistate settlement with Nexo on behalf of 53 U.S. jurisdictions. Under the settlement, Nexo agreed to implement various investor protection procedures for the benefit of Nexo’s U.S. investors.
The U.S. Securities and Exchange Commission (SEC) entered into a separate settlement with Nexo for the same penalty amount. The SEC settlement acknowledges the December 2022 announcement from Nexo that it would be ceasing its Earn Interest Product and would subsequently be phasing out all of its products and services in the United States.
“We charged Nexo with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors,” said SEC Chair Gary Gensler. “Compliance with our time-tested public policies isn’t a choice. Where crypto companies do not comply, we will continue to follow the facts and the law to hold them accountable. In this case, among other actions, Nexo is ceasing its unregistered lending product as to all U.S. investors.”