In the KuCoin legal dispute, New York's Attorney General asserts that Ether is a form of security.
Rewritten Article:
Letitia James, the New York State Attorney General, has slapped crypto exchange KuCoin with a lawsuit on Thursday, claiming that the Seychelles-based platform is flouting securities laws by offering tokens, including ether, without registering them with her office. This legal action marks the first time a regulator has asserted in court that ether qualifies as a security.
Though Securities and Exchange Commission (SEC) Chairman Gary Gensler has hinted at the possibility of considering ether as a security, the SEC's counterpart, the Commodity Futures Trading Commission (CFTC), has long maintained that ether, like bitcoin, is a commodity asset.
James' suit alleges that ether falls under the definition of a security under the Martin Act, a 102-year-old anti-fraud law granted to the Attorney General powers to investigate securities fraud and pursue both civil and criminal actions against offenders. The suit contends that the value of ether is contingent on the efforts of others, including co-founder Vitalik Buterin, and therefore KuCoin was required to register before marketing ether.
According to the lawsuit, the NYAG's office classifies ETH, luna (LUNA) token, and terraUSD (UST) stablecoin, all traded on the exchange, as securities. After the lawsuit was announced, the price of ETH nose-dived by 8%, and the broader crypto market followed suit.
In a press release, the NYAG's office stated, "The petition argues that ETH, much like LUNA and UST, functions as a speculative asset that leans on the endeavors of third-party developers to yield profits for ETH holders. Consequently, KuCoin was obligated to register before selling ETH, LUNA, or UST."
KuCoin apparently ignored subpoenas served by the NYAG's office via email and in-person.
The lawsuit also accuses KuCoin of peddling unregistered securities through its lending and staking product, KuCoin Earn. The office was able to create a KuCoin account employing a computer with a New York-based IP address and purchase and sell digital tokens, for which KuCoin levied a fee. The Attorney General's office was also able to deposit tokens into the KuCoin Earn product, again upon payment of a fee.
KuCoin has previously run afoul of regulators. In 2022, South Korean regulators took issue with KuCoin for conducting unlicensed business activities, while the Dutch Central Bank made similar allegations in December, claiming the exchange lacked an operational license.
With the lawsuit, Attorney General James aims to prohibit KuCoin from operating as an exchange, prevent the company from functioning within New York, and compel KuCoin to utilize geo-blocking based on IP addresses and GPS locations to bar access to its apps and services from New York.
UPDATE (March 9, 2023, 20:55 UTC): Additional details added throughout.
UPDATE (March 9, 21:05 UTC): Incorporated ETH price movement.
- The price of Ethereum (ETH) dropped by 8% after Letitia James, New York State Attorney General, filed a lawsuit against crypto exchange KuCoin, alleging that ETH, alongside LUNA and UST, is a security and should have been registered before marketing.
- This is the first time a regulator has claimed in court that Ethereum qualifies as a security, setting a precedent in the cryptocurrency industry.
- When the lawsuit was announced, the broader cryptocurrency market followed suit, reflecting uncertainty about the future of unregistered securities on crypto exchanges.
- KuCoin is currently under scrutiny for offering unregistered securities through its lending and staking product, KuCoin Earn.
- In 2022, South Korean regulators and the Dutch Central Bank also accused KuCoin of conducting unlicensed business activities, highlighting a growing concern in the finance and business sector.
- If the lawsuit against KuCoin succeeds, the company may be prohibited from operating as an exchange and barred from functioning within New York, potentially setting a precedent for future regulatory actions against crypto exchanges.
- Vitalik Buterin, co-founder of Ethereum, is not directly named in the lawsuit, but the value of Ethereum is argued to be contingent on his efforts and the efforts of other third-party developers.
