New York Attorney General Letitia James and a multistate coalition today secured up to $24 million from cryptocurrency companies Nexo Inc. and Nexo Capital Inc. (Nexo).
Nexo was engaging in the unregistered offer and sale of securities and commodities and for lying to investors about their registration status. Today’s agreement will resolve a civil lawsuit brought by the Office of the Attorney General (OAG) against Nexo in September 2022, as well as administrative actions by securities regulators in nine other states. Nexo will also be banned from the securities industry in New York for five years and must notify all its U.S. investors, including roughly 3,000 New Yorkers, to withdraw their assets from the platform. New York will receive more than $1.9 million from Nexo as part of today’s agreement.
“Cryptocurrency companies are unreliable and shady, but they are not immune from accountability,” said Attorney General James. “Nexo ignored repeated warnings by my office to register and today they are paying the price for their wrongdoing. The days of crypto companies acting like the rules do not apply to them are ending. I thank my partners in other states and on the federal level for joining me in this effort to hold Nexo accountable for their unacceptable practices.”
The agreement addresses Nexo’s unregistered offer and sale of securities in the form of an interest-bearing virtual currency account called the Earn Interest Product (EIP). Attorney General James and a multistate coalition secured up to $22.5 million due to Nexo’s unregistered offer and sale of the EIP. Each of the 53 U.S. jurisdictions that are members of the North American Securities Administrators Association will be eligible to claim a settlement of more than $424,000. Additionally, Attorney General James secured $1.5 million for New York to settle Nexo’s unregistered purchase and sale of securities and commodities through a virtual currency trading platform called the Nexo Exchange.
In addition to monetary relief, today’s agreement includes a five-year ban on Nexo offering or selling securities in New York. Under the agreement, Nexo will be required to notify all remaining U.S. investors to withdraw their virtual assets from Nexo’s platform by April 1, 2023. Nexo will also be required to segregate U.S. investor assets, recognize that U.S. investors hold legal title to those assets, and not lend, stake, or otherwise use those assets in risky speculative activities. Nexo has also agreed to verify the identity of all prospective new customers to ensure it does not violate the bar on unregistered activity in New York.
Joining Attorney General James in today’s agreement are state securities regulators from California, Indiana, Kentucky, Maryland, Oklahoma, South Carolina, Vermont, Washington, and Wisconsin.
The U.S. Securities and Exchange Commission today also announced a parallel settlement in which Nexo agreed to pay an additional $22.5 million and cease the offer and sale of variable-rate EIP accounts in the United States.
Today’s filing continues Attorney General James’ efforts to protect New York investors and regulate the cryptocurrency industry. Earlier this month, Attorney General James sued the former CEO of Celsius for defrauding investors and concealing Celsius’s dire financial condition. In June 2022, Attorney General James warned New Yorkers of the dangerous risks of investing in cryptocurrencies after the market reached then-record lows. Also in June, Attorney General James reached a nearly $1 million settlement with crypto platform BlockFi Lending LLC for offering unregistered securities. In March 2022, 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 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 once again urges 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.
The case was handled by Assistant Attorney General Jesse Devine and Senior Enforcement Counsel Matthew Woodruff 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 overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.