Thursday, the office of the New York Attorney General, Letitia James filed a lawsuit against the cryptocurrency exchange KuCoin on the grounds that it violated the state’s securities and commodities laws. In an effort to rein in what she calls “shadowy” cryptocurrency companies, New York’s attorney general filed suit against cryptocurrency exchange KuCoin on Thursday for failing to register with the state before allowing investors to buy and sell cryptocurrencies on its platform.
I'm suing cryptocurrency platform @kucoincom for illegally operating in New York without registering with the state.
— NY AG James (@NewYorkStateAG) March 9, 2023
This is our eighth action to rein in shadowy cryptocurrency platforms that disregard our laws and put New Yorkers at risk.
State securities law is called the Martin Act, and Attorney General Letitia James has claimed that the fourth largest cryptocurrency platform has broken it by dealing in cryptocurrencies, selling the product “KuCoin Earn” to make money for itself and investors, and falsely labeling itself a “exchange.”
This is the first time a government agency has asserted legally that ether is a security. Despite Gary Gensler, chairman of the Securities and Exchange Commission (SEC), suggesting that the SEC might classify ether as a security, the Commodity Futures Trading Commission (CFTC) has consistently held that both bitcoin and ether are commodity assets.
James claims in the lawsuit that the value of Ether is contingent on the efforts of others, including co-founder Vitalik Buterin, and therefore constitutes a security under the Martin Act, a 102-year-old New York anti-fraud law that gives the Attorney General powers to investigate securities fraud and bring both civil and criminal actions against violators.
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.
In a press release the NYAG’s office said
Furthermore, James claimed that KuCoin’s loan and mining product, KuCoin Earn, constitutes the sale of illegal stocks. The New York Attorney General’s Office was able to open a KuCoin account and purchase and trade digital coins for a price by using a computer with a New York-based IP address. For a charge, it could also add coins to the KuCoin Reward offering.
The case SEC v. LBRY is cited in the lawsuit as supporting their position. As such, a perpetual order is sought against KuCoin’s offering and purchasing stocks and commodities to and from New Yorkers. It also requests that the court order an inventory of all New York residents who have used the exchange and the return of any ill-gotten gains. In January, ten states, including New York, sued Nexo Inc, a bitcoin firm, and settled for up to $24 million.
