Nexo will pay $500,000 to settle allegations that the cryptocurrency lender issued thousands of loans to Californians without a license and without considering borrowers’ ability to repay, the state’s Department of Financial Protection and Innovation announced last week.
“Lenders must follow the law and avoid making risky loans that endanger consumers — and crypto-backed loans are no exception,” DFPI Commissioner KC Mohseni said in a statement. “DFPI will continue to hold companies accountable when they break the law and put consumers’ financial security at risk.”
In an emailed statement Tuesday, Nexo spokesperson Eleonor Genova said the settlement concerns “legacy issues from an earlier phase of the business.”
“These do not reflect the company’s current operations, governance standards or compliance framework. We maintain a constructive, ongoing dialogue with regulators as part of standard supervisory processes,” Genova said. “Our focus remains on operating in line with regulatory expectations and building a resilient, well-governed business for our clients.”
The loans cited by the DFPI were made between July 2018 and November 2022. Nexo, in December 2022, said it would exit the U.S. market after reaching a “dead end” despite 18 months of good-faith talks with U.S. regulators on how the company could comply with American financial laws.
But the company announced last April that it would return to the U.S., a move that co-founder Antoni Trenchev credited to the Trump administration’s more crypto-friendly attitude.
Genova on Tuesday said Nexo “has not resumed the provision of products or services in the U.S. yet.”
Nexo didn’t “ask for, and generally did not evaluate, the borrower’s credit history, debt, expenses, or documents relating to the borrower’s overall financial condition and ability to make timely credits on their loan,” the DFPI said in its consent order Jan. 14.
Further, Nexo marketed that the prospective borrowers did not have to go through these checks, California regulators said.
Rather than assess creditworthiness, Nexo required borrowers to overcollateralize their loans, the regulators said. The fine print in Nexo’s agreements gave the company the right to liquidate the assets of a crypto customer in the event their loan-to-value ratio hit 83.33%, regulators said.
As part of the settlement, the DFPI ordered Nexo, within 150 days, to move funds belonging to affected California customers to Nexo Financial LLC, a U.S.-based affiliate that holds a California license.
California was one of eight states whose regulators filed administrative actions against Nexo in September 2022, claiming the company’s Earn Interest Product, which allowed customers to lend digital assets in interest-bearing accounts, qualified as a security and needed to be registered as such.
After exiting the U.S. market, Nexo agreed to pay a $45 million fine to the Securities and Exchange Commission to resolve allegations that it sold unregistered securities through its EIP. Half of that total – $22.5 million – represented penalties to various state regulators.
