New York Attorney General Letitia James led a bipartisan multistate coalition to reach a $24 million settlement with cryptocurrency company Nexo for allegedly offering and selling unregistered securities and commodities. As noted in AG James’s press release, each of the 53 U.S. jurisdictional North American Securities Administration Association (NASAA) members will be eligible to claim a settlement of more than $424,000. In a parallel action, Nexo agreed to pay $45 million in penalties to the U.S. Securities and Exchange Commission (SEC).
Nexo offered Earn Interest Products (EIPs) — accounts advertised as interest-bearing virtual currency accounts — allowing investors to deposit their crypto-assets in exchange for interest. Nexo used the account assets to generate income for its own business and promised to pay interest on the account. Both state regulators and the SEC deemed the product as a security, which required companies to register the offer and sale of the products. As part of the settlements, Nexo will cease the offer and sale of EIP accounts in the United States. In New York, Nexo also must notify all remaining U.S. investors to withdraw their virtual assets from Nexo’s platform by April 1, as well as verify the identity of all prospective new customers to avoid violating the bar on unregistered activity.
State regulators and the SEC previously enforced regulatory actions against similar products, including BlockFi’s $100 million settlement with the SEC and state AGs over its BlockFi Interest Accounts, and the NY AG’s suit against Celsius’ founder and former CEO Alex Mashinsky for making repeated misrepresentations about the company’s financial products and asset holdings to investors. In the latter, state regulators began issuing cease-and-desist or “show cause” orders in 2021 against Celsius for offering interest-bearing cryptocurrency accounts before the company announced its July 2022 bankruptcy.
Why This Matters
Actions against Nexo follow the recent trend of state regulators scrutinizing high-risk industries, such as cryptocurrency and other virtual assets, as part of NASAA’s Operation CryptoSweep where North American securities regulators organize a task force to share information and coordination actions against various cryptocurrency companies. The multistate settlement against Nexo involved coordinated efforts of 10 states — California, Indiana, Kentucky, Maryland, New York, Oklahoma, South Carolina, Vermont, Washington, and Wisconsin — again underscoring that cryptocurrency scrutiny represents a bipartisan issue.
Troutman Pepper State Attorneys General Team
|Ashley Taylor – Co-leader and Firm Vice Chair
Ashley is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice. He focuses primarily on federal and state government regulatory and enforcement matters involving state attorneys general, the Consumer Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC). Drawing upon his experience as a deputy attorney general, Ashley has developed an extensive consumer practice with regard to the consumer financial services industry.
|Clay Friedman – Co-leader
Clay is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice. Informed by nearly a decade in a state attorneys general office, and more than 25 years in private practice, Clay spends much of his time representing clients in singular or multistate regulatory actions. Clay has repeatedly led teams before all 50 state attorneys general and also handles matters with the Federal Trade Commission, the Consumer Financial Protection Bureau, and other local, state and federal agencies.
Stephen represents clients interacting with, and being investigated by, state attorneys general and other enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, particularly in heavily regulated industries.
Michael handles high-profile state attorneys general, FTC, and CFPB investigations by advising clients through these complex government inquiries. He assists clients through the entire life cycle of investigations, from regulatory enforcement through formal litigation.
As a former government official at the state and federal level, Ketan leverages extensive experience in the public and private sectors to skillfully represent client interests.
A former deputy attorney general of New York, Avi applies his experience in bet-the-company matters, representing clients in criminal and civil investigations and enforcement actions before state and federal regulators, prosecutors and enforcement agencies.
Chris represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general.
Natalia is an associate in the firm’s business litigation practice. She recently received her J.D from the University of California, Davis School of Law.
Namrata is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. Her work includes advising clients in regulatory investigations and compliance matters, in addition to representing clients in civil litigation matters.
Susan is an associate in the firm’s Consumer Financial Services Practice Group, and focuses her practice on consumer financial services matters. She has defended several of the nation’s largest and most influential financial institutions in individual and class action litigation involving the Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and other consumer privacy statutes. Susan also represents banks, fintechs, and financial services companies in connection with regulatory examinations and investigations brought by the CFPB, state attorneys general, and the California Department of Financial Protection and Innovation.
Whitney is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She represents clients facing state and federal regulatory investigations and enforcement actions, as well as related civil litigation.
Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement practice. His experience includes serving as a summer associate at the firm in 2021.
An experienced litigator, Daniel advises and represents regional, national and international companies, financial institutions and insurers in all facets of business, complex commercial and insurance coverage litigation. He is committed to working with his clients to find creative solutions to meet their needs.
Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department.