Crypto-currency company Nexo is facing a class-action lawsuit filed by an XRP investor for illegally posting the crypto-currency as collateral without informing customers and then liquidating the tokens. The decision follows a lawsuit filed by the US Securities and Exchange Commission (SEC) against Ripple and its executives.
Nexo requests the suspension and liquidation of XRP
XRP investor Junhan Zhong filed a class action lawsuit against Nexo Financial LLC, Nexo Financial Services Ltd. (collectively, Nexo). In a lawsuit filed on 1. April filing, it alleges that Nexo unlawfully suspended the use of XRP as collateral without informing customers or disposing of the tokens.
Nexo offers customers the ability to use cryptocurrencies as collateral to borrow money. XRP was among the accepted cryptocurrencies until the U.S. Securities and Exchange Commission sued Ripple Labs and two of its executives, accusing them of taking more than $1.3 billion through the sale of unregistered securities offered on XRP.
The 23rd. December, the day after the SEC filed a complaint against Ripple, Nexo suspended customers’ use of XRP as collateral or to pay loans, without notice of the suspension, the lawsuit says. It is further claimed that Nexo did this because it did not want to hold XRP at a significantly lower level. Moreover, Nexo began selling a large amount of XRP warrants within hours.
Nexo’s suspension of XRP payments and failure to disclose constituted a material breach of Nexo’s credit terms, which govern Nexo’s relationship with its customers, the lawsuit states:
Accordingly, Nexo’s suspension of payments under the ULP and liquidation of these customers’ collateral were unlawful, and these customers are entitled to be repaid the value of their ULP at the time of Nexo’s suspension and the value of their liquidated collateral at the time of the breach (less the amount of the outstanding loan on that collateral).
The lawsuit alleges that Nexo has been in business since the 23rd. December unlawful and unfair trade practices under California’s Unfair Competition Law … by suspending unfair XRP payments to Nexo without notifying Nexo’s customers and by liquidating collateral based on Nexo’s ownership of it. According to the court document, the plaintiff noted that Nexo had liquidated its lien and kept the product for itself.
In addition, the lawsuit alleges that Nexo also engaged in deceptive and misleading advertising … by using language on its website, in its white papers, and in online interviews that mislead customers by leading them to believe that if they take out Nexo’s cryptocurrency loan, they are giving their cryptocurrencies as collateral for the debt reflected in the cryptocurrency loan, rather than selling their cryptocurrencies to Nexo and giving Nexo ownership of the assets. The full report of the tribunal can be found here.
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