Letitia James, the attorney general for the state of New York, filed a lawsuit against KuCoin, alleging that the Seychelles-based cryptocurrency exchange is breaking the law by offering tokens, such as ether, that meet the criteria for securities without first registering with the office of the attorney general on Thursday.
This is the first legal instance in which a regulator has argued that ether is a security. Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), has suggested that his organization may view ether as a security, while the Commodity Futures Trading Commission (CFTC), the SEC’s sister regulatory body, has long held that both bitcoin and ether are commodity assets.
Since the value of ether depends on the efforts of others, including co-founder Vitalik Buterin, James’ lawsuit claims that it qualifies as a security under the Martin Act, a 102-year-old New York anti-fraud law that grants the Attorney General the authority to investigate securities fraud and bring both civil and criminal actions against violators.
The terraUSD (UST) stablecoin, the luna (LUNA) token, and ETH, which are all traded on the exchange, are all claimed to be securities by the NYAG’s office in the case. 30 minutes after the suit’s disclosure, the price of ETH was down 8%, and the overall cryptocurrency market also took a hit.
Is ether a speculative asset?
According to a press statement from the NYAG’s office, the petition claims that ETH, like LUNA and UST, is a speculative asset that depends on the efforts of third-party developers in order to generate profit for the holders of ETH. Due to this, KuCoin had to register in order to sell ETH, LUNA, or UST.
James further suggested that KuCoin’s lending and staking platform, KuCoin Earn, sells unregistered securities. Using a computer with a New York-based IP address, the Attorney General’s office was able to open a KuCoin account and buy and sell digital tokens for a fee. For a price, it could also add tokens to the KuCoin Earn offering.
The NYAG’s office’s complaint is not KuCoin’s first run-in with authorities. Regulators in South Korea charged KuCoin of engaging in “illegal commercial activities” without having a valid license in 2022. Similar claims that the exchange was operating illegally were made by the Dutch Central Bank in December.
