Nexo Slapped with $500K Fine for Risky Crypto Loans

California regulators have fined crypto lending firm Nexo $500,000 for issuing unlicensed crypto-backed loans to over 5,000 residents. The California Department of Financial Protection and Innovation (DFPI) stated that Nexo failed to assess borrowers' ability to repay, debt levels, or credit history according to regulatory findings. The penalty marks the latest regulatory challenge for Nexo, which has faced multiple enforcement actions in the U.S. in recent years.

Nexo must also transfer all funds from California residents to a licensed U.S. affiliate within 150 days. The company has not responded to requests for comment.

The DFPI emphasized that lenders must comply with the law and avoid risky lending practices, noting that crypto-backed loans are subject to the same standards as traditional lending.

The unlicensed lending occurred between July 2018 and November 2022, a period during which Nexo expanded its lending business before exiting the U.S. market amid regulatory pressure. The firm has since suspended its traditional lending products for U.S. customers, offering only crypto-backed borrowing services abroad.

Why Did This Happen?

The DFPI found that Nexo issued at least 5,456 unlicensed loans to California residents through its Cayman Islands-based entity. The company did not evaluate key financial details, increasing the risk of defaults. Regulators cited a lack of underwriting policies and failure to adhere to state lending laws as per regulatory reports.

This is not the first time Nexo has faced regulatory scrutiny in the U.S. In 2023, the company paid $45 million in settlements with the SEC and state regulators over its Earn Interest Product, which was deemed an unregistered securities offering. Nexo also faced criminal charges in Bulgaria, which were later dropped. The firm subsequently filed a $3 billion arbitration claim against the Republic of Bulgaria according to reports.

What Are Analysts Watching Next?

Industry observers are concerned about Nexo's compliance record and the potential for further regulatory action. Kadan Stadelmann of Komodo Platform noted that the lack of credit checks and income verification in crypto-backed lending increases systemic risk. He emphasized that California's regulatory framework is designed to protect consumers against defaults and to prevent a crypto version of the 2008 financial crisis as regulatory analysis shows.

The no-admit-no-deny settlements used by Nexo have allowed the firm to avoid legal admissions that could lead to shareholder lawsuits or future regulatory barriers according to legal analysis. However, Stadelmann warned that the company could face increased scrutiny and potential regulatory oversight if it re-enters the U.S. market.

Nexo has signaled its intent to re-enter the U.S. market, a move that now faces heightened scrutiny following the latest fine. The firm has pursued high-profile partnerships and international expansion efforts, including a multi-year sponsorship with the Australian Open. It also hosted an event in Bulgaria featuring Donald Trump Jr. in April 2025 according to reports.

What's Next for Nexo?

The fine adds to a growing list of regulatory challenges for Nexo in the U.S. The firm now faces the task of complying with California's lending requirements while navigating a broader shift in the regulatory landscape. With a more crypto-friendly administration in Washington, Nexo may see opportunities to re-enter the market under new conditions.

The outcome of Nexo's regulatory compliance efforts will be closely watched by both investors and regulators. The firm's ability to navigate these challenges will determine its long-term prospects in the U.S. market and its reputation in the global crypto industry according to industry analysis.