New York AG targets Nexo, Celsius in digital currency loan purge

New York became the latest state to join the purge of digital currency loans that other states like New Jersey and Alabama began months ago. The state attorney general sent a cease and desist letter to two loan companies, with three others having received requests for information on how they handle their user deposits.

New York Attorney General Letitia James issued two cease and desist letters to the two loan companies on Monday. The letters have been redacted, with the names of the companies under the whip hidden. Of the three requests for information, crucial details such as the names of the companies had also been redacted when the letters were published.

However, the attorney general’s office had missed the labels on the letters, a cease and desist letter retaining the name “Nexo Letter” while an information request retained the name “Celsius Letter”. This error was quickly corrected by the OAG office shortly after its publication.

The cease and desist letter only gave the two companies 10 days to shut down operations in New York City. They must confirm to the OAG that they have ceased all their activities “or explain why the OAG should not take further action, including requesting all repairs authorized by law”. The other three have until November 1 to respond to the request for information.

Digital currency lender Nexo Financial LLC confirmed it was one of the recipients of the cease and desist letters in a statement. A source close to Celsius Network LLC, a troubled lender who is being kicked out by a number of US state regulators, also confirmed to Bloomberg that the London-based company had received a request for information.

In the press release, AG James insisted that digital currency companies operating in New York City must follow state regulations.

She said, “Cryptocurrency platforms must follow the law, like everyone else, which is why we are now ordering two crypto companies to shut down and forcing three more to immediately answer questions.”

James accuses the companies of violating the Martin Act, a New York anti-fraud law that is widely considered to be the toughest anti-fraud law in the United States. As she pointed out, the Martin Act is remedial legislation, which means that its provisions “must be read broadly”. This is a loophole that some digital currencies have exploited, claiming that since current laws don’t specifically mention digital assets, they operate in a gray area.

The NYAG accused the five companies of violating securities laws, saying, “The nature and function of the most common virtual currency lending products or services demonstrate that they clearly fall under one of many. “security” categories under the Martin Act. “

Although he acknowledged the cease and desist letter, Nexo claimed there must be a mistake because it was not offering its New York State interest accounts. As such, “it doesn’t make sense to receive a C&D for something we don’t offer in New York anyway. But we will discuss with NY AG to see if this is a clear case of confusion between the recipients of the letter. We use IP-based geoblocking, ”Nexo CEO Antoni Trenchev told the media.

With over $ 12 billion in assets under management, Nexo is one of the largest companies in the digital currency lending industry, alongside Celsius and BlockFi. The latter was not available in New York, with a September 2020 announcement blaming “some of the state’s rules and regulations regarding crypto.”

Celsius declined to comment on the latest move.

New York has now become the sixth state in the United States to crack down on digital currency lenders. New Jersey, Alabama, Kentucky, Vermont and Texas have all taken steps to curb this practice which they say violates securities laws. New York, however, is the first to crack down on five companies, with the other five only targeting BlockFi and Celsius Network.

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