A planned U.S. return by crypto lender Nexo has run into fresh resistance in California, the country’s largest state economy and a critical market for consumer finance. The latest enforcement action revives questions about whether past compliance failures remain an obstacle to re-entering the U.S., even as crypto firms test a more permissive regulatory climate. For Nexo, the timing is especially awkward. The penalty concerns historical conduct, but it lands just as the firm has been signaling interest in rebuilding a U.S. footprint.
California Fines Nexo $500K Over Unlicensed Crypto Loans
California’s financial regulator has fined Nexo $500,000 for issuing unlicensed crypto-backed loans to thousands of residents, citing failures to follow basic consumer lending rules. The California Department of Financial Protection and Innovation (DFPI) said Nexo issued crypto-backed consumer and commercial loans to at least 5,456 Californians without holding the required state license. Regulators also found the firm failed to assess borrowers’ ability to repay, existing debt obligations, 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 enforcement release.
In addition to the civil penalty, Nexo has been ordered to transfer all California customer funds to a licensed U.S. affiliate within 150 days. The DFPI action matters because California is the largest U.S. state by population and gross domestic product, making it a gatekeeper market for consumer financial services and a bellwether for broader regulatory acceptance.
The $45M Settlement That Pushed Nexo Out of the U.S.
The California penalty adds to a long trail of U.S. regulatory actions that culminated in Nexo’s exit from the country in 2022. In January 2023, Nexo agreed to pay $45 million to settle charges with the U.S. Securities and Exchange Commission and multiple U.S. states over its Earn Interest Product, which regulators said was offered without proper registration. As part of that settlement, Nexo neither admitted nor denied wrongdoing but agreed to shut down its U.S. interest-bearing lending products. The resolution effectively ended the firm’s U.S. crypto lending business at the time.
“The fact that Nexo failed basic ability-to-repay checks for thousands undoubtedly raises red flags about systemic compliance shortfalls,” said Kadan Stadelmann, chief technology officer at Komodo Platform, in comments reported by Decrypt.
Manhattan DA Seeks Jail Time for Unlicensed Crypto Operators
Manhattan District Attorney Alvin Bragg is backing a new bill that would make running an unlicensed crypto business a criminal offense in New York, arguing that civil fines haven’t been enough to deter bad actors. Dubbed the CRYPTO Act, the proposal from Bragg and State Senator Zellnor Myrie would introduce escalating penalties for firms operating without a state virtual currency license, starting as a misdemeanor and rising to a Class C felony for businesses that handle $1 million or more in crypto within a year. A felony conviction could carry up to 15 years in state prison. Bragg said crypto has become “the go-to means for bad actors to move and hide the proceeds of crime,” calling for tougher consequences for firms that “flout due diligence requirements.” Supporters say the measure targets unlicensed operators — not crypto users — but critics warn harsher penalties could push companies to avoid New York if rules remain unclear.