A cryptocurrency lender company, Nexo, is experiencing issues with multiple states in the US. New York, Maryland, California, Kentucky, South Carolina, and Vermont reported that Nexo had violated security laws. A primary reason is Nexo’s Earn Interest Product (EIP).
The same issues affect Blockchain companies BlockFi and Celsius are also acting on Nexo. The problem is with interest-bearing accounts. According to California, Nexo has sold unqualified securities to its traders since June 2020. Nexo has sold these securities in the form of Earn Interest Product accounts.
“Nexo has offered and sold unqualified securities, in the form of Earn Interest Product accounts, to the United States public and California residents.”
The state of New York and its attorney general, Letitia James, filed a lawsuit against Nexo. New York reports too that Nexo has been offering EIPs since June 2020. According to James, this violates New York’s Martin Act. Nexo violated the Act by acting as an unregistered security broker.
Washington security division also reported the same violations against Nexo. The same is true for Kentucky, Vermont, South Carolina, and Maryland. The states want Nexo to cease current operations tied to its interest-bearing accounts.
Celsius goes Bankrupt; BlockFi under Fire
Similar actions took place against Celsius and BlockFi in 2021. Celsius went bankrupt. BlockFi was charged in February 2022 by the SEC. The crypto community talks negatively about BlockFi to date. Therefore, the issue has negative implications. Nexo should be careful and cease operations; the company should follow the law.
BlockFi escaped bankruptcy by paying the SEC $100 million to settle the debts. 2022 has not been the year for cryptocurrency lenders. When rumors surfaced that Celsius was bankrupt, Nexo offered to buy its assets. BlockFi denounced any associations with Celsius and only affirmed that when Celsius paused withdrawals from its platform, it caused a significant client withdrawal from BlockFi.
BlockFi did, however, have exposure to the now-defunct crypto hedge fund Three Arrows Capital (3AC), and Blockfi’s CEO said the firm lost $80 million from the bankrupt company. Nexo has been tweeting on September 26, but the crypto lender has not issued a statement concerning the securities regulators giving cease and desist orders. Three days ago, the NFT lending desk held an ask-me-anything (AMA) session featuring the co-founder of Nexo and the firm’s managing partner.
BlockFi remains safe due to the exposure to the hedge fund from Three Arrows Capital (3AC). Even though the firm lost $80 million from Celsius declaring bankruptcy, it is doing well. Nexo is still promoting its services on Twitter but has not responded to the claims. It has not even responded to the regulators’ cease and desist orders.
What is the Future of Nexo?
Four days ago, the company’s CEO had an (ask-me-anything) AMA session with an NFT lending platform. It is impossible to predict the future of Nexo. From the past trends, companies under the SEC lens usually face bankruptcy or close 2_3 years after court cases. However, some, like BlockFi, manage to get through the rough patch. However, not without a few scratches. It will take time for BlockFi to entirely secure its position in the market. Therefore, Nexo should act quickly in response to the authorities.