Attorney General Letitia James of New York State filed a lawsuit against KuCoin on Thursday, saying that the Seychelles-based crypto exchange violates securities laws by providing tokens – including ether – that fulfill the definition of security without registering with her office.
The case is part of continuous efforts to crack down on unregistered cryptocurrency platforms, according to a press release.
New York Lawsuit Against KuCoin
This lawsuit represents the first time a regulator has asserted in court that ether is a security. Meanwhile, Securities and Exchange Commission (SEC) Chairman Gary Gensler has indicated that his agency may consider ether to be a security, the SEC’s sister regulatory agency, the Commodities Futures Trading Commission (CFTC), has maintained for years that both bitcoin and ether are commodity assets.
James’ lawsuit asserts that ether is a security under the Martin Act, a 102-year-old New York anti-fraud law that gives the Attorney General the authority to investigate securities fraud and bring both civil and criminal actions against violators, because the value of ether depends on the efforts of others, including co-founder Vitalik Buterin.
According to the lawsuit, the NYAG considers that ETH, the luna (LUNA) token, and terraUSD (UST) stablecoin, which are all traded on the exchange, are securities. The price of ETH fell 8% thirty minutes after the lawsuit was made public, with the entire cryptocurrency market also experiencing a significant decline.
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KuCoin PReviously Faced Other Violations
The petition contends that ETH, like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers to generate profits for ETH holders.
Hence, KuCoin was required to register prior to selling ETH, LUNA, and UST. KuCoin did not answer subpoenas given by email and in person by the NYAG’s office.
James stated further that KuCoin offers unregistered securities through its loan and staking program, KuCoin Earn. The Attorney General’s office was able to register a KuCoin account using a computer with a New York-based IP address to buy and sell digital tokens for a fee. It might also deposit tokens for a fee into the KuCoin Earn product.
The case brought by the New York Attorney General’s office is not KuCoin’s first encounter with regulators. In 2022, KuCoin was accused by South Korean regulators of engaging in illegal economic activities without proper registration.
In December, the Dutch Central Bank made identical claims, alleging that the exchange was operating without a license.
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