New York Attorney General Letitia James has filed a lawsuit against cryptocurrency exchange KuCoin, according to a March 9 announcement. James announced charges in a press release today, stating:
Today’s action is the latest in our efforts to rein in shadowy cryptocurrency companies. KuCoin Exchange operated in New York without registration and that is why we are taking strong action to hold them accountable and protect investors.
The State of New York seeks a permanent injunction against KuCoin from operating as an exchange or unregistered broker-dealer and seeks this order.
Don’t really see if these orders are made how Bitcoin is excluded from their effect even if it is considered the only crypto that is a commodity. New York residents will be shut out from trading any crypto on KuCoin including Bitcoin. Maybe Bitcoin maxis shouldn’t focus all their attention on gaining an advantage for Bitcoin by calling all other cryptos securities and think about other risks to Bitcoin from all of crypto being attacked.
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However, the Office of the Attorney General (OAG) now aims to stop KuCoin from operating in New York. It also aims to have the company restrict access to its website until it can comply. The company has been instructed to implement a geo-blocking feature in order to do so.
The OAG in a 28 pages PDF articles said that it was able to trade various cryptocurrencies on the exchange even though the company is not registered to provide those services in New York. The office additionally says that KuCoin claims to be an exchange but is not registered with the U.S. Securities and Exchange Commission (SEC), nor has it gained the relevant designation from the Commodities and Futures Trading Commission (CFTC).
The office further alleges that KuCoin trades several coins that are considered securities or commodities such as Ethereum (ETH), Terra (LUNA), and TerraUSD (UST). It also alleges that it offers unregistered securities through its lending product, KuCoin Earn.
The Attorney General’s office has taken action against several other cryptocurrency companies in the past. It made similar allegations against CoinEX in late February.
The office filed fraud charges against former Celsius CEO Alex Mashinsky in January 2023 and reached a $45 million settlement with Nexo that same month. The office additionally issued a general warning to crypto investors and sought information from individuals affected by the various crypto market crash points in 2022.
The OAG often takes action against companies that have not obtained a BitLicense from the New York Department of Financial Services. Currently, just 33 firms have a license or charter, giving the office plenty of opportunities to impose its rule.
What’s amazing is that the NYAG has laid out the exact arguments that the Bitcoin community warned about the entire time before the merge. Alas, Ethereans chose NGU tech over a truly trustless consensus mechanism, Andrew Throuvalas noted.
Her argument for why ETH is a security:
- ICO from ETH Foundation to fund network development
- Shift from POW to POS
- Promoted as an investment on ETH foundation website.
The shift to proof-of-stake significantly impacted the core functionality and incentives for owning ETH, because ETH holders now can profit merely by participating in staking,” read the filing.
The Securities and Exchange Commission (SEC) has made various broad statements and insinuations in the past to suggest that Ether is a security, but Thursday’s lawsuit marks the first major set of charges to formally make the case.
SEC chairman Gary Gensler argued last month that “everything other than Bitcoin,” likely falls under his agency’s jurisdiction. In September, he claimed that Ethereum’s Merge may have made its native cryptocurrency more security-like.
Many in the crypto community aren’t on board with the NYAG’s allegations. Neeraj K. Agrawal from crypto policy think tank CoinCentre responded to the news with a priorly published set of arguments on the matter – claiming that “the value of ether and the functionality of the Ethereum network is not reliant on the [Ethereum] Foundation.”
Obviously we disagree with the NYAG’s argument that ETH is a security. Coin Center will be monitoring the case and if there’s an opportunity to weigh in, we will.
In the mean time, our argument for why ETH is not a security is unchanged: https://t.co/gZM3YEfDvT
— Neeraj K Agrawal (@NeerajKA) March 9, 2023
Last month, Coinbase CEO Brian Armstrong shared an argument claiming that staking does not involve securities transactions. The SEC filed a Wells notice against Paxos in February for issuing its BUSD stablecoin, which it alleges may also be an unregistered security.