New York Attorney General Files Lawsuit Against KuCoin for Alleged Securities and Commodities Law Violations
KuCoin Targeted for Falsely Representing Itself as an Exchange, Claims ETH is a Security
The New York Attorney General’s office has filed a lawsuit against cryptocurrency exchange KuCoin for allegedly violating securities and commodities laws in the state. Attorney General Letitia James has claimed that not only are Terra (LUNA) and TerraUSD (UST) securities, but Ethereum (ETH), the second-largest cryptocurrency by market capitalization, is also a security.
KuCoin Targeted for Alleged False Representation
According to the allegations made by Attorney General James in the lawsuit, KuCoin has misrepresented itself as an exchange while being a securities and commodities broker-dealer. The main goal of the lawsuit is to prevent access to the exchange in New York by requiring KuCoin to use geo-fencing methods based on GPS location and IP addresses.
With a “trust score” of fifth on CoinGecko’s list of cryptocurrency exchanges and a 24-hour trading volume ranking of 17th globally, KuCoin offers users the ability to purchase and sell popular cryptocurrencies like Bitcoin and Ethereum from any location, including the United States. The Seychelles-based company was once known for its advanced security features and was promoted as the most secure cryptocurrency exchange. However, in 2020, it faced a security breach that resulted in a loss of $150 million.
ETH Claimed to be a Security
The lawsuit asserts that ETH qualifies as a security due to several factors, including the ability for users to earn monetary rewards by merely holding the cryptocurrency. The petition states that after the implementation of proof-of-stake consensus, holding ETH directly translates to the potential for profit by earning staking rewards.
In the previous year, Ethereum adopted a proof-of-stake blockchain mechanism that necessitates users to stake or “lock-up” its inherent digital currency, ETH, to sustain the network’s operations. The staking rewards are directly proportional to the amount of ETH a user stakes, meaning that a higher stake potentially leads to more significant rewards.
Timing of the Lawsuit
The timing of the lawsuit is noteworthy, primarily because staking services have recently garnered regulatory scrutiny. In the previous month, the SEC imposed a $30 million fine on the renowned American exchange Kraken, claiming that its staking product violated securities regulations. SEC Chairman Gary Gensler has also suggested that Ethereum may attract the Commission’s attention, as he has made public statements repeatedly indicating that Bitcoin is the only cryptocurrency that the SEC views as a non-security asset.
The recent action by Attorney General Letitia James is the most recent step in a rigorous crackdown by US authorities on the cryptocurrency industry. Recently, the SEC has stepped up its enforcement actions, and politicians and lawmakers have become more critical of cryptocurrencies following the downfall of the once-dominant FTX cryptocurrency exchange and the arrest of its founder, Sam Bankman-Fried.
Last month, the state of New York, known for having some of the strictest cryptocurrency laws in the United States, initiated a lawsuit against cryptocurrency exchange CoinEx for neglecting to register as a securities and commodities broker-dealer.
Overall, the cryptocurrency industry is facing increased regulatory scrutiny as it continues to gain mainstream attention and adoption. With more and more investors pouring into the market, regulators are looking to ensure that the industry is operating in a transparent and lawful manner.
Disclaimer
The information presented in this Blogpost is solely for educational and informative purposes and should not be misconstrued as investment, financial or legal advice. Cryptocurrencies are a highly unstable and speculative market and their worth is susceptible to substantial fluctuations. Therefore, it is advisable to conduct personal research and seek counsel from qualified experts before making any financial decisions.
