Published
1 year ago on
March 10, 2023
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Letitia James, the New York Attorney General, has filed a suit against cryptocurrency exchange KuCoin for violating securities laws.
James claims that KuCoin sold tokens that classify as securites without registering with the AG’s office. The suit, according to the New York Attorney General, is the first time a regulator has claimed that Ether (ETH) is a security in the court.
KuCoin Sued By New York Attorney General
James filed the suit after she was able to purchase and sell crypto on the exchange, which is not registered in New York. TAccording to the Attorney General’s office, the action marks the first time that it has been claimed in court that ETH is a security.
Securities and Exchange Commission (SEC) Chair Gary Gensler has hinted that the SEC may consider Ether as a security. However, the SEC’s sister regulatory agency, the Commodity Futures Trading Commission (CFTC), has repeatedly maintained its position that bitcoin and Ether qualify as commodity assets. The complaint against KuCoin was filed on the 9th of March in the Supreme Court of the State of New York County. The New York AG stated on Twitter,
“I’m suing cryptocurrency platform @kucoincom for illegally operating in New York without registering with the state. This is our eighth action to rein in shadowy cryptocurrency platforms that disregard our laws and put New Yorkers at risk.”
Alleged Violation Of Securities Laws
The suit also alleges that KuCoin issued and sold its KuCoin Earn product, which the complaint calls a security, without registering as a dealer or securities broker. It also stated that KuCoin also misrepresented itself as an exchange because it did not register with the AG to perform that function.
The action by the New York Attorney General’s Office is not KuCoin’s first brush with regulators. In 2022, authorities in South Korea accused the exchange of conducting “illegal business activities” without fulfilling proper registration processes. In December 2022, the Dutch Central Bank made similar allegations against KuCoin, claiming that the exchange operated without a proper license.
Details Of The Suit
The suit filed by the New York Attorney General states that under state and federal authority, ETH, LUNA, and UST qualify as commodities under the state’s Martin Act, and KuCoin failed to register as a commodities broker. The suit then stated that ETH, LUNA, UST, and KuCoin Earn are securities under Waldstein. This is a test established by the New York Supreme Court of Albany County in 1936, along with the Howey Test as well. The New York Attorney General’s Office stated,
“The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH. Because of that, KuCoin was required to register before selling ETH, LUNA, or UST.”
The suit also cited the SEC vs. LBRY case to support its claim and sought a permanent injunction against KuCoin selling and buying securities and commodities to and from New Yorkers. Additionally, it also asked the court to demand details of those that have used the exchange and the disgorgement of any illegally obtained funds by New Yorkers.
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