New York authorities sue Kucoin over unregistered crypto sales, labels ETH a security

Letitia James, the Attorney General of New York State, has filed a lawsuit against KuCoin for allegedly operating as a securities and commodities broker-dealer without registering in the state, according to an official press release published on March 9. 

Interestingly, the suit is significant as it is the first regulatory lawsuit to classify Ethereum (ETH) as a security. The Martin Act, a 102-year-old anti-fraud law, formed the basis of the classification due to Ether’s market value’s reliance on the actions of third parties, including Vitalik Buterin, its co-founder. 

The lawsuit also labeled LUNA and TerraUSD stablecoin as securities. The lawsuit further accused KuCoin of falsely representing itself as an exchange and offering unregistered securities via KuCoin Earn, its lending and staking product. 

A secret user test

An official press release further states that the NYAG created a KuCoin account and successfully deposited cryptocurrencies on KuCoin Earn before filing the lawsuit. 

With the suit, the NYAG seeks to prevent KuCoin from operating in New York and ordering it to implement geo-location blocking based on its IP address and GPS across all its platforms.

New York Attorney General State, Letitia James said: 

“One by one, my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk. <…> 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.” 

Notably, KuCoin has been dealing with regulatory issues in various regions recently, including being banned by the regulator in Ontario, Canada, and being listed among illegal crypto exchanges by South Korea’s Financial Intelligence Unit