- The New York State Attorney General Letitia James sues KuCoin crypto exchange claiming that it violated securities law by offering tokens that fit the definition of a security, including Ether.
- The New York AG is seeking to restrict access to the cryptocurrency exchange in New York.
- The lawsuit is part of the state’s efforts to “crack down on unregistered cryptocurrency platforms.”
On Thursday, March 9, the Attorney General of New York, Letitia James, filed a lawsuit against KuCoin, alleging that the exchange had violated securities and commodities laws in the state.
In the lawsuit filed in the New York State Supreme Court, the Attorney General argues that the exchange “offered, sold and purchased and effected transactions in cryptocurrencies that were commodities and securities within New York, without having been registered as a commodity broker-dealer and securities broker or dealer in New York.”
The AG makes shocking claims that Ethereum (ETH), the second-largest cryptocurrency by market capitalization, is a security, just like Terra (LUNA) and TerraUSD (UST), as previously alleged by the United States Securities and Exchange Commission (SEC).
The KuCoin cryptocurrency exchange was launched in 2018 and is currently ranked at #4 based on traffic, liquidity, trading volumes, and confidence in the legitimacy of trading volumes, according to data from CoinMarketCap.
The Seychelles-based crypto trading platform allows users to buy and sell digital currencies like Bitcoin (BTC) and Ethereum (ETH) from anywhere in the world. The crypto firm once touted itself as “the most advanced and secure cryptocurrency exchange” before suffering a $150 million exploit in 2020.
Ethereum Fits The Definition Of A Security – AG James
Note that the complaint refers to Ether (ETH) and several other tokens as unregistered securities, which KuCoin has listed in New York. This remark directly contradicts recent comments by the Commodities Futures Trading Commission (CFTC) Chair Ristin Behnam that Ether is a commodity and not a security.
AG James says the “action is one of the first times a regulator claims in court that ETH, one of the largest cryptocurrencies available, is a security.” The AG’s office argues that Ethereum is “a speculative asset that relies on the efforts of third-party developers to provide profit to the holders of ETH.”
According to James:
“ETH’s development and management is largely driven by a small number of developers who hold positions in ETH and stand to profit from the growth of the network and the related appreciation of ETH.”
The filing also cited Ethereum Foundation’s initial coin offering (ICO) in 2014 as proof of securities offering.
Similar to the capital formation purpose of security offerings in the U.S., the documents from ETH’s ICO describe it “as promoting the development of the Ethereum blockchain by paying expenses incurred by developers, paying for legal contingencies, research, and further development.”
James further argues that KuCoin’s lending and staking platform, KuCoin Earn, sells unregistered securities. Using a computer with a New York-based IP address, the AG’s office could open a KuCoin account and buy and sell digital tokens for a fee. For a price, it could also add tokens to the KuCoin Earn offer.
These arguments may have broader ramifications for the cryptocurrency sector, and beyond any punitive penalties, the state of New York may collect from KuCoin. James claims that KuCoin’s refusal to show up on January 23 in response to a subpoena from her office is what prompted her office to file the case.
In the lawsuit, Attorney General James is asking the court to issue an injunction prohibiting KuCoin from identifying itself as an exchange, barring the business from operating in New York, and ordering the company to implement geo-blocking based on IP addresses and GPS locations to block access to its apps and services from New York.
