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New York AG Sues Crypto Firms For Offering Unregistered Products

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New York Attorney General Letitia James has sued cryptocurrency companies Nexo Inc. and Nexo Capital Inc., for failing to register with the state as securities and commodities brokers or dealers and for lying to investors about their registration status.

The lawsuit, filed in New York County State Supreme Court, alleges that Nexo promoted and sold securities in the form of an interest-bearing virtual currency account called the Earn Interest Product with promises of high returns for participating investors.

The lawsuit also alleges that Nexo used their virtual currency trading platform called the Nexo Exchange to engage in the unregistered purchase and sale of securities and commodities. They misled investors by falsely representing that it was in compliance with applicable laws and regulations.

However, they failed to register as a securities broker or dealer as required by state law despite warnings from the Office of the Attorney General (OAG). They also misrepresented to investors that they are a licensed and registered platform. Roughly 10,000 New Yorkers have accounts with Nexo.

In New York, entities engaging in the offer, purchase, or sale of securities or commodities, including cryptocurrency platforms, must register with OAG if they are operating within the state or offering their products to New Yorkers.

The AG is seeking disgorgement of any revenues derived from Nexo's unlawful conduct and restitution for thousands of defrauded investors through this lawsuit. It also seeks permanent injunctions against the defendants' violations of New York's Martin Act and New York Executive Law § 63(12).

"Cryptocurrency platforms are not exceptional; they must register to operate just like other investment platforms. Nexo violated the law and investors' trust by falsely claiming that it is a licensed and registered platform," said Attorney General James.

Nexo has also been pulled up by seven other state securities regulators of California, Kentucky, Maryland, Oklahoma, South Carolina, Washington, and Vermont. They have all also filed their own administrative actions against Nexo.

This lawsuit is part of Attorney General James' continuing efforts to regulate the cryptocurrency industry and protect New York investors. In May, the AG warned New Yorkers about the dangerous risks of investing in cryptocurrencies after the market hit record lows last month when investors lost hundreds of billions.

Earlier in 2022, the AG issued a taxpayer notice to virtual currency investors and their tax advisors to accurately declare and pay taxes on their virtual investments. In October 2021, the AG directed unregistered crypto lending platforms to cease operations for not fulfilling their legal obligations.

In March 2021, the AG warned New Yorkers of the risks of cryptocurrency investments and reminded investment platforms of their legal obligations.

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