Attorney General James Sues Cryptocurrency Platform For Operating Illegally And Defrauding Investors

September 26, 2022

New York Attorney General Letitia James today joined seven state securities regulators in suing cryptocurrency companies Nexo Inc. and Nexo Capital Inc. (Nexo).

They are failing to register with the state as securities and commodities brokers or dealers and for lying to investors about their registration status.

Despite warnings from the Office of the Attorney General (OAG) to register as a securities and commodities broker or dealer, Nexo failed to register and misrepresented to investors that they are a licensed and registered platform.

In New York, entities engaging in the offer, purchase, or sale of securities or commodities, including cryptocurrency platforms, must register with OAG if they are operating within the state or offering their products to New Yorkers.

Through her lawsuit, Attorney General James seeks disgorgement of any revenues derived from Nexo’s unlawful conduct and restitution for investors.

Cryptocurrency platforms are not exceptional; they must register to operate just like other investment platforms,” said Attorney General James. “Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors.”

Today’s lawsuit — filed in New York County State Supreme Court — alleges that Nexo promoted 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, while failing to register as a securities broker or dealer as required by state law.

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In addition, the lawsuit alleges that Nexo engaged in the unregistered purchase and sale of securities and commodities through its virtual currency trading platform called the Nexo Exchange, and misled investors by falsely representing that it was in compliance with applicable laws and regulations. Roughly 10,000 New Yorkers have accounts with Nexo.

Attorney General James specifically charges Nexo with violating New York’s Martin Act and New York Executive Law § 63(12).

Attorney General James seeks restitution for thousands of defrauded investors, disgorgement of revenues derived from Nexo’s unlawful conduct, and permanent injunctions against the defendants’ violations of state law.  

This matter arises from an investigation conducted in coordination with a working group of state securities regulators.

Today, state securities regulators of California, Kentucky, Maryland, Oklahoma, South Carolina, Washington, and Vermont all filed their own administrative actions against Nexo.

Today’s filing continues Attorney General James’ efforts to regulate the cryptocurrency industry and protect New York investors.

In August, Attorney General James urged New Yorkers affected by turmoil in cryptocurrency markets — including frozen accounts and deceptive conduct — to report these issues to OAG. In June, Attorney General James warned New Yorkers of the dangerous risks of investing in cryptocurrencies after the market reached record lows.

Also in June, Attorney General James reached a nearly $1 million settlement with crypto platform BlockFi Lending LLC for offering unregistered securities. Earlier this year, Attorney General James issued a taxpayer notice to virtual currency investors and their tax advisors to accurately declare and pay taxes on their virtual investments.

In October 2021, Attorney General James directed unregistered crypto lending platforms (including Nexo) to cease operations for not fulfilling their legal obligations.

In March 2021, Attorney General James warned New Yorkers of the risks of cryptocurrency investments and reminded investment platforms of their legal obligations.

Attorney General James continues to urge New Yorkers who have been affected by deceptive conduct in the virtual assets market to report these issues to OAG

Attorney General James also encourages workers in the cryptocurrency industry who may have witnessed misconduct or fraud to file a whistleblower complaint with her office, which can be done anonymously.

This case is being handled by Assistant Attorney General Jesse Devine of the Investor Protection Bureau, with assistance from Legal Assistant Charmaine Blake, also of the Investor Protection Bureau, and Detective Investigator Brian Metz of the Investigations Division.

The Investor Protection Bureau is led by Bureau Chief Shamiso Maswoswe and Acting Deputy Bureau Chief Ken Haim, and is a part of the Division for Economic Justice, which is led by Chief Deputy Attorney General Chris D’Angelo and overseen by First Deputy Attorney General Jennifer Levy.

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