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.
"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.
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.
"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."
“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.
