Crypto lending firm Nexo Capital has been fined $500,000 by California authorities for operating without a valid lending license and failing to evaluate whether borrowers could afford to repay their loans, according to a statement released by the state’s financial watchdog.
The California Department of Financial Protection and Innovation (DFPI) said that Nexo had violated local laws by issuing consumer and commercial loans to thousands of residents between July 2018 and November 2022.
According to regulators, the company offered these crypto-backed loans without conducting proper credit assessments and lacked the required authorisation to operate under state law.
Crypto-collateralised loans, which allow users to access fiat or stablecoins by pledging digital assets like Bitcoin or Ethereum, are often advertised as faster and more flexible alternatives to traditional lending.
However, their decentralised nature typically means they bypass the kinds of checks that are routine in traditional financial services.
“Nexo offered at least 5,456 loans in California without verifying borrowers’ financial capacity,” the DFPI said, citing a failure to review credit history, outstanding debt, or income levels before lending.
The agency noted that these practices violate the California Financing Law and increase the likelihood of defaults, especially in volatile crypto markets.
“Lenders must follow the law and avoid making risky loans that endanger consumers, ” DFPI Commissioner KC Mohseni said. “Crypto-backed loans are no exception.”
In addition to the monetary penalty, Nexo has been ordered to transfer all California customer funds to its US-based affiliate, Nexo Financial LLC, which holds a valid California Finance Lenders License.
According to the DFPI, this affiliate is required to meet all relevant licensing and disclosure obligations going forward.
In a statement to Invezz, Nexo said the issues cited by California regulators stem from an earlier phase of its business and no longer reflect its current operations.
“The matter referenced relates to legacy issues from an earlier phase of the business in 2022 and was resolved through a settlement with the relevant regulatory authority. After resolving this, Nexo is keeping its Californian license,” the company said.
“The resolution addresses obsolete licensing and compliance matters. These do not reflect the company’s current operations, governance standards, or compliance framework. We maintain a constructive, ongoing dialogue with regulators as part of standard supervisory processes. Our focus remains on operating in line with regulatory expectations and building a resilient, well-governed business for our clients. Nexo has not resumed the provision of products or services in the US yet.”
Regulatory scrutiny extends beyond California
The action in California adds to a growing list of regulatory challenges for Nexo.
In January 2023, the company paid $45 million in a settlement with the US Securities and Exchange Commission and multiple state regulators over its Earn Interest Product (EIP), which was deemed an unregistered securities offering.
As part of that deal, Nexo agreed to stop offering the product to US investors and exited the American market entirely by April 2023.
Despite the scrutiny, Nexo continues to operate globally through its licensed entities and remains active in the digital asset lending and wealth management space.
Earlier this month, the firm also announced it had become the first-ever title partner of the US ATP 500 Dallas Open, marking a multi-year sponsorship agreement that forms part of Nexo’s push to rebuild its brand presence through high-profile global partnerships.
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