New York Attorney General Letitia James sues KuCoin for allowing investors in New York to buy and sell Crypto without registering with the state. This lawsuit marks James’ eight action to rein in shadowy cryptocurrency platforms. From the press release:
New York Attorney General Letitia James continued her efforts to crack down on unregistered cryptocurrency platforms by filing a lawsuit against KuCoin for failing to register as a securities and commodities broker-dealer and falsely representing itself as an exchange.
The Office of the Attorney General (OAG) was able to buy and sell cryptocurrencies on KuCoin in New York even though the company was not registered in the state. Through this enforcement action, Attorney General James seeks to stop KuCoin from operating in New York and to block access to its website until it complies with the law. Today’s action is the latest in Attorney General James’ efforts to rein in cryptocurrency platforms.
“One by one my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk,” said Attorney General James. “Today’s action is the latest in our efforts to rein in shadowy cryptocurrency companies and bring order to the industry. All New Yorkers and all companies operating in New York have to follow our state’s laws and regulations. KuCoin operated in New York without registration and that is why we are taking strong action to hold them accountable and protect investors.”
KuCoin is a virtual currency trading platform that allows investors to buy and sell cryptocurrency through its website and app. On its platform KuCoin investors can buy and sell popular currencies, including ETH, LUNA and TerraUSD (UST), which are securities and commodities. This action 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 asses 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.
KuCoin also sells unregistered securities in the form of KuCoin Earn, its lending and staking product. New York law requires securities and commodities brokers to register with the state, which KuCoin failed to do. The OAG 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 OAG was also able to deposit digital tokens into the KuCoin Earn product, for which KuCoin also charged a fee…
…Through her lawsuit, Attorney General James seeks a court order that stops KuCoin from misrepresenting that it is an exchange, prevents the company from operating in New York, and directs KuCoin to implement geo-blocking based on IP addresses and GPS location prevent KuCoin’s mobile app, website, and services from New York…
Reuters reported that cryptocurrency token Ether fell to its lowest in two months on Friday after the New York attorney general labeled it a security, bracketing it with assets such stocks and bonds and fueling fears of a wider regulator crackdown.
According to Reuters, KuCoin is one of the biggest cryptocurrency platforms in the United States. The world’s second-biggest cryptocurrency token was trading around $1,390, its lowest since January 10.
In my opinion, KuCoin could have prevented being sued by New York Attorney General James. Unfortunately, KuCoin apparently believed it could get away with selling cryptocurrency in New York without registering to do so. My best guess is that KuCoin will – eventually – face some penalties for making that decision.