The cryptocurrency lending firm, Nexo Capital, has been fined $500,000 by California authorities for operating without a valid lending license. This comes after accusations that the company failed to assess whether borrowers could afford to repay loans, as reported by the California Department of Financial Protection and Innovation (DFPI).
Nexo’s Regulatory Violations
According to the DFPI, Nexo issued over 5,456 consumer and commercial loans between July 2018 and November 2022 without conducting proper credit assessments. These loans, backed by cryptocurrencies such as Bitcoin and Ethereum, bypassed traditional credit checks, including financial capacity verification, debt history, and income levels. The DFPI emphasized that such practices not only go against the California Financing Law but also increase the default risk in volatile markets.
“Lenders must follow the law and avoid making risky loans that endanger consumers,” said DFPI Commissioner KC Mohseni. “Crypto-backed loans are no exception.”
Consequences for Nexo
In addition to the monetary penalty, Nexo has been ordered to transfer all California customer funds to its US-based affiliate, Nexo Financial LLC, which holds a valid California lending license. The affiliate is also required to comply with all licensing and disclosure obligations moving forward. This action adds to the regulatory troubles Nexo has faced over the years.
Nexo’s History with Regulators
In January 2023, Nexo agreed to pay $45 million in a settlement with the US Securities and Exchange Commission and multiple state regulators concerning its Earn Interest Product (EIP). The SEC classified EIP as an unregistered securities offering, prompting Nexo to suspend the product for US investors and subsequently exit the US market by April 2023. Despite these setbacks, the company has continued operations globally through licensed subsidiaries.
Nexo’s Commitment to Rebuilding
As part of its efforts to rebuild its brand and restore trust, Nexo resumed operations in the US with new offerings, including crypto savings products, asset-backed credit lines, and trading services. Notably, this year, Nexo became the title sponsor of the US ATP 500 Dallas Open, a high-profile sponsorship aimed at enhancing the company’s global brand presence.
Related Product Highlight
For users exploring secure interest-earning platforms for their digital assets, platforms like BlockFi may offer a regulated and transparent option. BlockFi provides crypto-backed loans, interest accounts, and institutional services while operating under licensed US frameworks. Learn more about BlockFi here.
