Tag Archives: New York Attorney General

New York’s Attorney General Seeks Broader Authority To Police Crypto

Legal, ,

New York Attorney General Letitia James is proposing new legislation that would give her office more authority to regulate the increasingly tumultuous cryptocurrency industry, The Wall Street Journal reported.

The bill would give the attorney general’s office broader enforcement authority over crypto firms that have operations in the state, while codifying the New York State Department of Financial Services’ authority to license participants in the sector and oversee the state’s digital asset licensing regime.

The bill, called the Crypto Regulation, Protection, Transparency and Oversight Act, or CRYPTO, will be submitted by Ms. James’s office to the New York State Senate and Assembly for consideration during the 2023 legislative session, which runs through June 8.

The New York attorney general, an elected official, is seeking jurisdiction to enforce crypto firms’ violations of the law, issue subpoenas and impose civil penalties of $10,000 per violation for each individual or $100,000 per violation from each crypto firm, according to a statement from the attorney general’s office. The attorney general is also seeking to shut down businesses that are engaging in alleged fraud and illegality, The Wall Street Journal reported.

The website of New York Attorney General Letitia James posted: “Attorney General James Proposes Nation-Leading Regulations on Cryptocurrency Industry”. Here are some parts of the press release:

New York Attorney General Letitia James today announced landmark legislation to tighten regulations on the cryptocurrency industry to protect investors, consumers, and the broader economy. The multi-billion dollar industry lacks robust regulations making it prone to dramatic market fluctuations, and has been used to hide and facilitate criminal conduct and fraud.

Attorney General James’s program bill, which proposes the strongest and most comprehensive set of regulations on cryptocurrency in the nation, would increase transparency, eliminate conflicts of interest, and impost commonsense measures to protect investors, consistent with regulations imposed on other financial services…

Here is an overview of the CRYPTO bill:

Stop Conflicts of Interest

Preventing common ownership of crypto issuers, marketplaces, brokers, and investment advisers and preventing any participant from engaging in more than one of those activities;

  • Preventing crypto brokers and marketplaces from trading for their own accounts;
  • Prohibiting marketplaces and investment advisers from keeping custody of customer funds;
  • Prohibiting brokers from borrowing or lending customer assets; and
  • Prohibiting referrals from marketplaces to investment services for compensation

Require Public Reporting of Financial Statements

  • Undergo mandatory independent auditing and publish audited financial statements;
  • Provide investor with material information about issuers, including risks and conflict-of-interest disclosures;
  • Require cryptocurrency promoters to register and report their interest in any issuer whose crypto assets they promote

Require Public Reporting of Financial Statements

  • Enacting and codifying “know-your-customer” provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto bankers and marketplaces to only conduct business with first that comply to KYC provisions;
  • Banning the use of the term “stablecoin” to describe market digital assets unless they are backed 1:1 with U.S. currency or high-quality liquid assets as defined in federal regulations; and
  • Requiring platforms to reimburse customers who are victims of unauthorized asset transfers resulting from fraud.

It sounds to me like Attorney General Letitia James is wanting to treat crypto companies in a way that is similar to how banks are treated. That said, I think those companies will attempt to push back against this proposed bill.

New York Attorney General Cracks Down On Unregistered Crypto Platforms

Legal, ,

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.