California fines cryptocurrency platform Nexo $500,000 for "unlicensed" loans

Source: PortaldoBitcoin Original Title: California fines cryptocurrency platform Nexo $500,000 for “unlicensed” loans Original Link: California regulators fined the cryptocurrency platform Nexo $500,000 for issuing thousands of “unlicensed” loans to at least 5,456 residents of the state, adding another enforcement action to the company’s long-standing regulatory issues in the US.

California’s Department of Financial Protection and Innovation (DFPI) stated that its investigation found that Nexo Capital Inc., an entity based in the Cayman Islands and part of the Nexo group, offered loans to consumers and businesses secured by cryptocurrencies without holding a valid state license and without assessing borrowers’ repayment ability, existing debts, or credit history.

“Lenders must follow the law and avoid making risky loans that endanger consumers — and loans secured by cryptocurrencies are no exception,” said DFPI Commissioner KC Mohseni.

Nexo must also transfer all funds from California residents to a licensed affiliate in the US within 150 days. In response, a Nexo spokesperson said the resolution addresses “historical licensing and compliance issues.”

“These issues do not reflect the company’s current operations, governance standards, or compliance structure,” the spokesperson stated. “We maintain an ongoing constructive dialogue with regulators as part of standard supervisory processes. Our focus remains on operating in compliance with regulatory expectations and building a resilient, well-governed business for our customers. Nexo has not yet resumed offering products or services in the US.”

The conduct cited by regulators occurred between July 26, 2018, and November 22, 2022, during which Nexo expanded its crypto-backed loan business before ultimately withdrawing from the US amid increasing state and federal scrutiny.

Since then, Nexo has discontinued its traditional crypto loan products for US clients, maintaining only crypto-backed lending services abroad after a series of regulatory actions.

This marks another dispute between Nexo and California regulators, as two years ago, the California Department of Business and Consumer Services (DFPI) co-led a multi-state task force that secured a $22.5 million settlement related to the unregistered Earn Interest product.

In the same year, the US Securities and Exchange Commission (SEC) accused Nexo of failing to register its crypto loan product, imposing an additional $22.5 million fine and bringing Nexo’s total fines in the US for 2023 to $45 million.

“The fact that Nexo failed basic capacity checks for thousands of people undoubtedly raises suspicions about systemic compliance deficiencies, and consumers should take these alerts seriously,” said Kadan Stadelmann, CTO of Komodo Platform. He emphasized the importance of California’s regulatory framework for consumer protection, noting that the state’s regulation “tends toward over-collateralization to protect consumers against defaults, as well as borrower-focused protections necessary to prevent a crypto version of the 2008 financial crisis.”

After withdrawing from the US at the end of 2022 amid multiple enforcement actions, Nexo’s attempt to re-enter the market now faces scrutiny following the penalty imposed by DFPI and questions about its reliance on non-admission agreements.

“Non-admission agreements allowed Nexo to avoid admissions that could lead to shareholder lawsuits or prevent future licenses,” Stadelmann said, warning that the company “may face new admissions of guilt, increasing fines, or regulatory oversight” as authorities examine its compliance history.