New York Attorney General Letitia James has filed a lawsuit against Kucoin, a Seychelles-based crypto exchange, 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) alleges that members of their team were able to purchase crypto assets on Kucoin, despite the exchange not being registered in the state. The lawsuit seeks to ban Kucoin from operating in New York, with James describing it as her latest enforcement action to “rein in cryptocurrency platforms.”
The charges against Kucoin come just two weeks after the OAG filed a lawsuit against Coinex. However, the lawsuit against Kucoin has drawn more attention due to the OAG’s declaration that the second-largest crypto asset by market capitalization, ethereum (ETH), is a security.
In the complaint’s press release, the lawsuit details that the crypto assets ethereum, terra (LUNA), and terrausd (UST) are securities. According to the OAG, these assets are speculative and rely on the efforts of third-party developers to provide profit to their holders. Because the state of New York considers these crypto assets to be securities, Kucoin failed to register as a licensed broker in the state.
The lawsuit defines ethereum as a security, stating that it is promoted as an investment and that the Ethereum Foundation notes on its website that many ethereum users “see it as an investment, similar to Bitcoin and other cryptocurrencies.” The lawsuit also cites representations made in ICO documents that ethereum production would dramatically slow over time, making ethereum increasingly scarce and valuable.
The declaration that ethereum is a security has sparked a debate within the crypto community. While some see it as a step towards increased regulation and oversight, others are concerned that it could have a negative impact on the crypto market. Following the news, the crypto economy has fallen below the $1 trillion range, with bitcoin (BTC) losing 7.76% in the past 24 hours, and ethereum (ETH) shedding 7.54% against the U.S. dollar.
This is not the first time that the New York attorney general’s office has cracked down on crypto platforms. In recent years, the office has filed lawsuits against a number of platforms, including Bitfinex and Tether, accusing them of covering up the loss of hundreds of millions of dollars in client and corporate funds. The office has also launched investigations into the practices of other crypto platforms, including Binance and Kraken.