New York Attorney General Files Lawsuit Against KuCoin Platform for Trading Unregistered Securities, Including ETH
The crackdown on unregistered cryptocurrency platforms continues in New York as Attorney General Letitia James files a lawsuit against KuCoin. The Attorney General’s Office was able to buy and sell cryptocurrencies on KuCoin’s platform in New York, even though the company is not registered in the state.
Through this enforcement action, Attorney General James seeks to stop KuCoin from operating in New York and block access to its website until it complies with the law. This latest action is the eighth in a series of enforcement actions taken by Attorney General James against cryptocurrency platforms that fail to register with the state.
KuCoin is a cryptocurrency trading platform that allows investors to buy and sell cryptocurrencies through its website and app. The platform allows investors to trade popular cryptocurrencies, including ETH, LUNA, and TerraUSD (UST), which are securities and commodities.
This lawsuit is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security. The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers to provide profit to the holders of ETH. As a result, KuCoin was required to register before selling ETH, LUNA, or UST.
KuCoin also sells unregistered securities in the form of its lending and staking product, KuCoin Earn. New York law requires securities and commodities brokers to register with the state, which KuCoin failed to do. The Attorney General’s Office was able to create an account with KuCoin using a computer with a New York-based IP address and buy and sell digital tokens, for which KuCoin charged a fee. The office was also able to deposit digital tokens into the KuCoin Earn product, for which KuCoin also charged a fee.
In addition, KuCoin claimed to be an exchange, but it is not registered with the Securities and Exchange Commission as a national securities exchange or appropriately designated by the Commodity Futures Trading Commission, as required under New York Law. KuCoin also failed to comply with a subpoena issued by the Attorney General’s Office to provide more information about its digital asset trading activities in the state. KuCoin has already been found to be operating without proper licensure in multiple jurisdictions, including the Seychelles, Canada, and the Netherlands.
Through this lawsuit, Attorney General James seeks a court order that stops KuCoin from misrepresenting itself as an exchange, prevents the company from operating in New York, and directs KuCoin to implement geo-blocking based on IP addresses and GPS location to prevent access to its mobile app, website, and services from New York.
This latest lawsuit continues Attorney General James’ efforts to enforce New York laws in the cryptocurrency industry and protect New York investors. In the past, Attorney General James brought action against CoinEx for similarly failing to register as a securities and commodities broker. She also recovered $24 million from the cryptocurrency platform Nexo for operating illegally and sued the former CEO of Celsius for defrauding investors and concealing the company’s dire financial condition.
Attorney General James urges New Yorkers who have been affected by deceptive conduct in the crypto assets market to report these issues to her office. She also encourages workers in the cryptocurrency industry who may have witnessed misconduct or fraud to file a whistleblower complaint with her office, which can be done anonymously.
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