NY Attorney Sues KuCoin for Operating Unregistered Cryptocurrency Platform

Amid the intensifying US crackdown on crypto platforms, the New York (NY) Attorney General has sued KuCoin for operating an unregistered cryptocurrency exchange in the state. According to a press release

I'm suing cryptocurrency platform @kucoincom for illegally operating in New York without registering with the state.

This is our eighth action to rein in shadowy cryptocurrency platforms that disregard our laws and put New Yorkers at risk.

— NY AG James (@NewYorkStateAG) March 9, 2023

NY Attorney Calls ETH a Security

Letitia James’ complaint gathers that KuCoin offers the sale and purchase of securities and commodities without registering itself with the US Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), and the Office of Attorney General (OAG). It misrepresented itself as an “exchange”, even though it lacked the required license.

The lawsuit claims that KuCoin offers the trading opportunities of ETH, LUNA, and TerraUSD (UST), which she considers securities. According to James, this is for the first time that a regulator has claimed that Ether is a security in the court. She said:

“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.”

Although KuCoin is not registered in New York state, the OAG was able to create an account with the exchange and trade cryptocurrencies with a NY-based IP address, “for which KuCoin charged a fee.”

Furthermore, the exchange is alleged to have issued and sold its KuCoin Earn product, which the complaint labels a security, without registering as a securities broker or dealer. It also failed to comply with an OAG subpoena to provide more information about its digital asset trading activities in the state. NY AG also noted KuCoin’s license deficiencies in multiple jurisdictions including the Seychelles, Canada, and the Netherlands.

With this legal, Letitia James seeks to stop KuCoin from representing itself as an exchange, stop operations in the NY state, and implement geo-blocking measures to prevent New Yorkers from accessing its platform.

Following the FTX blowout, cryptocurrency exchanges are beeping red on regulators’ radars. KuCoin has recently paid $30 million in fines over its staling service and agreed to halt the flagged product. As reported, Binance is also in talks with the regulators to settle the investigations over its regulatory misconduct.