California regulators have fined digital assets platform Nexo $500,000 for issuing thousands of "unlicensed" loans to at least 5,456 state residents, adding another enforcement action to the firm’s long-running regulatory troubles in the U.S.
The California Department of Financial Protection and Innovation said its examination found that Nexo Capital Inc., a Cayman Islands–based entity and part of the Nexo group, offered crypto-backed consumer and commercial loans without holding a valid state license and without evaluating borrowers' ability to repay, existing debt, or credit history, in a statement released Thursday.
"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 the statement.
Nexo must also transfer all funds of California residents to a licensed U.S. affiliate within 150 days.
The conduct cited by regulators occurred between July 26, 2018, and November 22, 2022, a period in which Nexo expanded its crypto-backed lending business before ultimately withdrawing from the U.S. amid mounting state and federal scrutiny.
Nexo has since shuttered its traditional crypto lending products for U.S. customers, maintaining only crypto-backed borrowing services abroad after a series of regulatory actions.
It marks yet another run-in between Nexo and California regulators, as two years ago, the DFPI co-led a multistate task force that secured a $22.5 million settlement over the company’s unregistered Earn Interest Product.
The same year, the U.S. Securities and Exchange Commission charged Nexo with failing to register its crypto lending product, imposing an additional $22.5 million penalty and bringing the firm’s total U.S. fines for 2023 to $45 million.
"The fact that Nexo failed basic ability-to-repay checks for thousands undoubtedly raises red flags about systemic compliance shortfalls, and consumers should heed these warnings," Kadan Stadelmann, Chief Technology Officer at Komodo Platform, told Decrypt.
He pointed to California's regulatory framework as critical for protecting consumers, noting that the state's regulation "leans towards overcollateralization to protect consumers against defaults, as well as borrower-focused protections which are needed to avoid a crypto version of the 2008 financial crisis."
After withdrawing from the U.S. in late 2022 amid multiple enforcement actions, Nexo’s bid to re-enter the market now faces scrutiny following the DFPI penalty and questions over its reliance on no-admit-no-deny settlements.
“The no-admit-no-deny settlements allowed Nexo to avoid admissions that could result in shareholder lawsuits or bar future licenses," Stadelmann said, while warning the company "could face further admissions, increasing fines, or regulatory monitors" as authorities scrutinize its compliance record.
“Other crypto companies have faced similar regulatory penalties, including the likes of FTX and Binance, and remain in business. Why not Nexo?” he quipped.
Representatives for Nexo did not immediately respond to a request for comment.
