Nexo Buys Stake in U.S. Bank Summit National, Paving the Way for a Crypto Lender Bank Charter

At the end of September, crypto lender Nexo bank purchased a stake in U.S. Bank Summit National. The purchase now paves the way for Nexo to receive a bank charter as a cryptocurrency lender. Nexo can now offer banking services to Americans as a licensed U.S. banking institution. The move by Nexo is a path other cryptocurrency lenders can use to gain access to the U.S.-regulated banking system.

The value of the purchase and the amount of Summit National Nexo purchased is undisclosed. Nexo is calling the deal “Industry changing” as it will provide cryptocurrency borrowers the security they need from a banking regulated entity. Nexo also states that they will now be able to bring new products to clients with enhanced legal security and expand their footprint in the United States.

What is Nexo?

Nexo was founded in 2018 as a company that provides financial services for digital assets. The company states that they manage investments for more than 5 million users across 200 jurisdictions. Nexo is a cryptocurrency lender with a robust portfolio of cryptocurrency loans looking for diversification and providing multiple services. Nexo also has a prime brokerage operation in digital assets, providing institutional clients with the tools they need to borrow and securitize crypto trading. Nexo has more than $4 billion in assets under management. They started working with several state regulators to differentiate the company from other cryptocurrency players who have found themselves in financial difficulties.

What is Summit National Bank?

Nexo decided it would be helpful to diversify and purchase a portion of Summit National Bank. The financial institution was founded in 1984 in Wyoming in the United States. The focus of the company’s operations is in Wyoming, Idaho, and Montana. The company focuses on real estate, mortgages, agriculture, and construction lending. Summit national bank is also known as HulettBankcorp.

Nexo is Facing a Lawsuit

One of the issues Nexo is facing is a lawsuit from eight states within the United States. The company is accused of offering interest-bearing accounts to customers without registering these products as securities and providing the disclosures needed before offering these products to customers. The orders in the wake of the suit prevent Nexo from offering this product to residents of these states until it meets the requirements for registration.

The state regulators include members from New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Vermont, and Washington. The underlying issue is that without the financial statements from Nexo, investors cannot make an informed decision about the interest-bearing products Nexo is offering.

The lawsuit also alleges that Nexo misrepresented its products and relayed to investors that it was licensed and registered to provide lending in the cryptocurrency space. The filing said that some of the products offered returns for deposits in cryptocurrency as high as 36%.

The suit comes as a handful of companies filed for bankruptcy in 2022 and left investors without access to their capital. In its terms and conditions, Nexo says it can return customers’ assets at its discretion. There was significant money invested in Nexo’s interest-bearing products. According to the Vermont state order, more than 93 thousand investors deployed capital of $800 million into these accounts.

The Bank Charter

By purchasing a portion of Summit Bank, Nexo has taken a stake in a federally regulated U.S. Bank. It will now be able to offer U.S. banking products as a licensed financial company. Nexo plans to offer cryptocurrency-backed loans and checking accounts in fiat currency. The deal is geared to help Nexo become more familiar with the disclosures and regulations needed to offer cryptocurrency-backed loans in the United States. It will also allow the company to provide clients with enhanced legal safeguards.

Will the Bank Charter Help Nexo?

The bank charter will assist in forming new product offerings that are federally regulated. It will not likely help Nexo with its eight-state lawsuit and rescind the issue of the company offering products without registering those products as securities. New York State Attorney General Letitia James says, “Cryptocurrency platforms are not exceptional,” and that Nexo violated New York law and investors’ trust by falsely claiming they were licensed on a registered platform.

The Hurdle

Nexo is trying to find its way back to the customer now that it fell slightly foul by not disclosing its registration and license. The strategy appears to be gaining access to a bank charter and then offering products that work within the guidelines of Federal Banking laws. Nexo will likely need federal approval for all of the products that are listed under their bank charter.

The legal issues with the states will continue to be a thorn in the company’s side, however, this civil suit may be able to be adjudicated with money and more robust regulation. Since the company is already moving down the route of providing customers with more robust oversight by signing up for a banking charter, it might reduce their exposure to regulatory constrictions brought by the states.

The Bottom Line

Nexo is a cryptocurrency lender that recently purchased a portion of Summit Bank to attain a banking charter. The company is now working with the U.S. Federal regulators to set up the proper licenses to loan money to their digital company. Eight states sued the company in the United States for providing deposit rates in cryptocurrency without registering or having a permit for those securities. While Nexo is simultaneously working out issues with the states, it will embark on a path to receive the necessary license to lend to the public via its bank charter.

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