California regulator hits Nexo with $500K penalty for unlicensed crypto loans California’s Department of Financial Protection and Innovation (DFPI) has fined crypto platform Nexo $500,000, finding that a Cayman Islands–based affiliate, Nexo Capital Inc., issued thousands of unlicensed crypto-backed loans to at least 5,456 state residents. DFPI’s examination determined that between July 26, 2018, and November 22, 2022, Nexo Capital offered consumer and commercial loans secured by crypto without a valid California lending license and without conducting basic borrower checks—such as assessing ability to repay, existing debt levels, or credit history. “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 agency’s statement. Alongside the fine, the DFPI ordered Nexo to transfer all funds belonging to California residents to a licensed U.S. affiliate within 150 days. Nexo response A Nexo spokesperson told Decrypt the settlement addresses “historical licensing and compliance matters” and does not reflect the company’s current operations, governance, or compliance framework. The spokesperson said Nexo is maintaining a “constructive, ongoing dialogue with regulators” and has not resumed offering products or services in the U.S. Regulatory context and company history The conduct cited by the DFPI occurred during a period when Nexo was expanding its crypto-backed lending business in the U.S.; the company later withdrew from the market amid mounting state and federal scrutiny. Nexo has since shut down traditional crypto lending products for U.S. customers and currently offers crypto-backed borrowing services only outside the United States. This latest penalty adds to a string of U.S. enforcement actions against Nexo. Two years ago the DFPI co-led a multistate task force that secured a $22.5 million settlement over Nexo’s unregistered Earn Interest Product. The U.S. Securities and Exchange Commission also charged the firm for failing to register its crypto lending product and imposed a separate $22.5 million penalty—bringing Nexo’s total U.S. fines for 2023 to $45 million. Industry reaction and implications Kadan Stadelmann, CTO at Komodo Platform, told Decrypt the DFPI’s findings point to “systemic compliance shortfalls.” He said the lack of basic ability-to-repay checks for thousands of borrowers “undoubtedly raises red flags” and praised California’s regulatory focus on borrower protections and overcollateralization as safeguards against a potential crypto-driven version of the 2008 crisis. Stadelmann also criticized the use of no-admit-no-deny settlements, suggesting they can let firms avoid admissions that might trigger shareholder suits or bar future licenses. He warned that Nexo “could face further admissions, increasing fines, or regulatory monitors” as authorities continue to scrutinize the company’s record—but noted that other crypto firms have survived similar penalties. What’s next Nexo’s plan to re-enter the U.S. market will likely face closer scrutiny after this DFPI action. The transfer deadline for California customer funds and any follow-up enforcement or licensing hurdles will be key milestones to watch as regulators and industry observers assess whether Nexo has remediated past compliance gaps. Editor’s note: This story was updated to add comment from a Nexo spokesperson. Read more AI-generated news on: undefined/news

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