United States-based crypto lending platform Nexo is facing a class-action lawsuit over suspension of XRP services on Dec. 23, 2020.
The lead plaintiff, California resident Junhan Jeong, submitted the complaint on Thursday. The complaint accuses Nexo of breaching its user agreement by suspending the use of XRP as loan collateral without notifying its customers beforehand. The suspension followed the U.S. Securities and Exchange Commission’s legal action against Ripple Labs for conducting unregistered securities offerings on Dec. 22.
Nexo allows users to borrow fiat currency or stablecoins using over-collateralized loans that are backed by crypto assets. Should price fluctuations in the crypto markets cause loans to no longer meet the platform’s required loan-to-value ratio, the complaint cites Nexo’s terms of service as stating that “Nexo will — after providing notice to the customer — sell the collateral to bring the LTV ratio back in line.”
Jeong alleges that Nexo reacted to the SEC’s announcement by suspending the use of XRP as collateral, to pay down loans, and for staking on Dec. 23. As a result, many users were left unable to support their loan positions, prompting wholesale liquidations across the platform.
Further, the plaintiff alleges Nexo “unjustifiably” sold off customers’ XRP and pocketed the proceeds, stating:
“Seeing the price of XRP thus drop significantly, on December 23, Nexo suspended customers’ use of XRP to stake as collateral or pay down on loans and did so without providing notice of the suspension. Nexo did so because it did not want to be left holding XRP at its substantially decreased value—not because Nexo believed that the SEC’s announcement counseled against the use or sale of XRP.”
According to the lawsuit, Nexo’s suspension resulted in the liquidation of more than $5 million worth of its customers’ assets. The plaintiff also alleges that Nexo’s XRP liquidations contradicted the company’s claim it doesn’t possess ownership rights of users’ collateral.
Jeong is seeking restitution for the alleged losses incurred from the XRP suspension, along with an order declaring Nexo’s contractual rights:
“Declaration regarding the parties’ contractual rights is necessary because the rights and obligations at issue are central to the very operation and use of the Nexo Crypto Credit, and because Nexo’s public statements demonstrate that the parties have a fixed and genuine dispute over those rights and obligations.”
Responding to the allegations, Nexo noted that it was one of several companies that, in response to regulatory uncertainty, suspended credit lines in XRP.
The firm said, “The actions undertaken by Nexo, upon legal counsel, were in adherence with laws, regulations, and the company’s own terms and conditions, and intended to protect the business and its clients.”
Nexo maintains that XRP top-ups and withdrawals remained available on the platform to all users.
The platform further claimed that it has been the target of harassment “via various media and communication channels by several former clients liquidated as a result of the December 2020 XRP crash.”
Nexo said that it will responde to “meritless lawsuits” with “equal severity and through the applicable legal instruments and mechanisms.”
Indeed, the platform recently filed a defamation lawsuit against former customer Lance Johansen over alleged “false and defamatory statements” the defendant published on review platform Trustpilot in early 2021.
In particular, Nexo is taking aim at Johansen’s comments claiming the platform is operated by an ex-felon, uses bot accounts to disseminate fake news and that it purposely “robbed all XRP owners blind” through its suspension of the token.